Gross income

economic-dictionary

Gross income is the total amount of money that is incorporated into the budget or assets of an entity, be it public or private, individual or group.

As a concept, gross income is very important. Since many people do not distinguish between gross income, real income, net income or nominal income.

Gross income, to put it another way, is the total money that comes into our checking account. In the case of a company, it would be the total money that goes into the box. This type of income, therefore, does not take into account tax payments, interest, commissions or any associated expenses.

For example, let's say we sell a car for $ 20,000. Our gross income will be $ 20,000. We are not taking into account the price at which we buy the car, the repair costs, the associated taxes, or anything similar.

Types of gross income

There are two types of gross income depending on whether we take inflation into account or not:

  • Gross real income: Gross real income is gross income after discounting the inflation rate.
  • Gross nominal income: Gross nominal income is gross income without discounting the inflation rate.

This difference is fundamental. Above all, because if inflation grows a lot, real income will be much lower than nominal income. To put it somehow, gross real income is a much more realistic variable. Although to tell the truth, the variable most adjusted to reality would be the net real income.

Characteristics of gross income

As we have already indicated, this type of income represents the total amount of money received. Therefore, it is convenient to know that nothing is discounted, not even any of the following magnitudes:

  • Taxes
  • commissions
  • Interests
  • Credits
  • Other types of associated expenses

Gross income example

Suppose a company sells cars. It has three cars with the following data:

Sale price Purchase price Taxes Repairs Cleaning
Car 1 10.000 8.000 1.000 250 50
Car 2 20.000 12.000 2.000 500 100
Car 3 15.000 16.000 1.500 300 75

On the last day of the month, your boss asks you to include your gross income on your earnings report. As we have already said, we will not take into account anything other than the money that comes into the box.

The money that comes into the box would be the result of adding the sale prices (even if they are lower than the purchase price). The final result would give us:

Total gross income = Sale of car 1 + sale of car 2 + sale of car 3

Total gross income = 10,000 + 20,000 + 15,000 = $ 45,000

Gross income is equivalent to $ 45,000.

Difference between gross and net Total income

Tags:  USA right markets 

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