Gross income is the total amount of income earned by an individual, business or organization before any deductions or taxes are taken out. It includes all sources of income, such as wages, salaries, tips, bonuses, commissions, interest, dividends, and rental income. Gross income is a measure of an entity’s economic activity and is used for tax purposes, financial reporting, and other financial calculations.
Formula for Gross Income: Gross income is calculated by adding up all sources of income earned during a specific period of time. The formula for gross income can be expressed as follows:
Gross Income = Total Revenue – Cost of Goods Sold (COGS)
or
Gross Income = Total Income + Other Income
Calculation of Gross Income: To calculate gross income, you need to determine all sources of income earned during a specific period of time, such as a month, quarter, or year. Then, you need to add up all of these sources of income to arrive at the total gross income for that period. The calculation of gross income can be illustrated using the following example:
Example: Suppose an individual earns a salary of $50,000 per year, receives $5,000 in interest income from savings accounts, and earns $2,000 in rental income from a property they own. Their gross income for the year would be:
Gross Income = Salary + Interest Income + Rental Income Gross Income = $50,000 + $5,000 + $2,000 Gross Income = $57,000
In this example, the individual’s gross income for the year is $57,000.
It is important to note that gross income does not take into account any deductions or taxes that may apply. The net income, which is the amount of income after all deductions and taxes are taken out, is a more accurate representation of an individual’s income.