Difference Between Gross and Net
Gross vs Net
Whether you are a business entrepreneur starting up on your business or a student fresh out of college and taking steps to start your career, you are sure to come across the terms ‘gross’ and ‘net’. Indeed, when it comes in the business sector, these two terminologies are the most commonly used, yet, many people can still find themselves a little bit in the dark when it comes to understanding these concepts.
Generally speaking, the term ‘gross’ simply means the amount of earnings that you and your business are able to generate over a specific period of time. This can easily be computed by multiplying the number of units sold for a particular product by the price that product is being sold for. These are then totaled to give you the gross earnings you and your business earned. The same holds true for the gross earning computed for service-oriented business. Instead of tabulating the total amount earned for each product, this is replaced by the kinds of services that are being offered by your business. If you are an employee, your gross salary is the basic salary that was offered to you by the company plus any bonuses and commissions that you earned for a particular period of time.
The net earnings refer to the earnings you and your business generated minus any form of expenses. Simply put, the net earning is the actual amount that you earned within a particular period of time. If you are a business owner, these expenses would often entail to the operating expenses incurred within a particular period of time in order to keep the business running. Such expenses would include electricity use, salaries of your employees, taxes and other legal fees, materials, advertisements and the like. The total amount of these expenses is then deducted from the total gross earnings in order to get the net amount.
The same thing holds true for employees. In this case, it is not the operating expense that is deducted from the gross salary earned. Instead, these are the taxes and other dues that are deducted, such as health insurance, your 401K, unauthorized absences and tardiness, withholding tax, social security fund, and the like. These deductions differ depending on the payment scheme that is used by the company that you work for. If you are receiving your salary on a bi-monthly basis, only the withholding tax, absences and tardiness is deducted on a bi-monthly basis, while all the others are deducted on a monthly basis.
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