Question

What is an explanation of the concept of gross income?

Answer 1

In terms of a business, it is the excess of revenue over operating expense. That is the difference between revenue and cost of goods sold. In the calculation of gross income indirect expenses like selling & distribution, salaries, insurance expense, administrative expense, tax etc are excluded.

Basically, it is Revenue – Cost of Goods Sold (Direct Labour, Direct Material, etc)

For example,

ABC Company shows following details, Proceeds from sale – 50000$, Interest Income – 8000$, Other Source of Income – 5500$, Wages – 10000$, Cost of Raw materials used – 9000$, Salary -5000$, Selling & Distribution expense – 2500$, Interest Expense – 1000$.

The calculation will be,

PARTICULARS		AMOUNT ($)
Income -
Sales Revenue	50000
Interest Income	8000
Others	5500	63500
Expense -
Wages	10000
Cost of Materials	9000	(19000)
GROSS INCOME		44500

However, for individuals, it is the income that is subject to taxation. In other words, it is the total income deducted by allowable deduction but before tax.