What is the difference between net income & gross income?
How does net income differ from gross income? Well, they're two critical metrics used to measure a company's profitability. Gross profit is the profit remaining after the deduction of production cost from the income generated from the sale of goods and services.
Net income, on the other hand, refers to the amount of money a business or an individual makes after expenses, allowances, deduction costs, or taxes have been deducted. Technically, as compared to gross profit, net income is more inclusive and is capable of providing you with more insight into the effectiveness of the management team.
When to use net income?
Net income can only be used after deduction of income taxes, operating expenses, depreciation costs, and interest on loans or debts. Note that expenses can also include wages, salary, raw materials, cost of goods, and taxes.
Net income can also be used in a company's income statement to show the overall profit gained after deductions on gross and expenses. The amount can be used to pay the shareholders, make investments, pay employee wages, or savings.
When to use gross income?
Gross income is typically used when filing income taxes or by lenders to determine what you can afford.