Formula to Calculate Gross Income (Individual & Business)
Gross Income formula is calculated with reference to individuals and businesses. Though it has different meanings for individuals and businesses, it measures the same thing for both. Gross income for an individual is his total income earned before any deductions and taxes. This includes income from all sources including rent, dividends, interest, etc. Gross income for a business is the revenue earned from the sale of goods and services minus the cost of goods sold.
Gross income formula for an individual is represented as below,
Gross income formula for a business is represented as below,
Gross income is different from net income. While calculating net income, all business expenses are deducted from total revenue. When gross income is computed for a business, all the expenses are not deducted. Only the cost of goods sold is deducted.
Calculation of Gross Income (Step by Step)
 In order to do the calculation of the gross income for an individual, use the following steps:

 Step 1: Find out all the sources of income like salary, dividends, rent, etc.
 Step 2: Aggregate all these sources of income obtained in the first step: Gross Income = Salary + Rent + Dividends + Interest + All Other Sources of Income
 In order to calculate the gross income for a business, the following steps should be followed:

 Step 1: Find out the total revenue of the business
 Step 2: Find out the cost of goods sold for the business
 Step 3: Calculate the gross income using the formula: Gross Income = Total Revenue – Cost of Goods Sold
Examples
Example #1
Mr. Albert is an employee in a manufacturing concern. His annual salary is $1,20,000. He has no other income. Find out his gross income per month.
Solution
Use the belowgiven data for calculation of gross income.
Calculation of Gross Income Per Month
=120000/12
 Gross Income per Month = 10,000
The gross income per month of Mr. Albert is 10,000.
Example #2
Mathews Smith is an employee with a number of sources of income. He works in a factory manufacturing consumer products. He works for 40 hours in a week. His hourly wage is $10. Assume that there are 52 weeks in a year. In addition, he holds some shares. He gets an annual dividend income of $1,000.
In addition, his annual income includes rent of $4,000 and interest on savings bank account of $1,000. He pays income taxes of $500 in the year. Calculate the annual gross annual income of Mathews Smith.
Solution
Use the belowgiven data for calculation of gross income.
Total Salary Income
 = 40 * 10 * 52
 Total Salary Income = 20,800
Therefore, the calculation of the gross income is as follows,
= 20,800 + 1,000 + 4,000 + 1,000
Gross Income will be –
 Gross Income = 26,800
The Gross Income of Mathews Smith in the year is $26,800.
Note: Gross Income is obtained before deductions of any taxes. Hence, income taxes of $500 are not deducted while calculating gross income.
Example #3
Griggles Inc. is engaged in the manufacturing of shoes. The Chief Financial Officer (CFO) of the company digs into the financials and obtains certain data. Its gross revenue is $1,00,000. In addition, it incurs the following expenses:
Calculate the gross income for Griggles Inc. form the above information.
Solution
Calculation of Cost of Goods Sold
 = 10,000 + 20,000 + 5,000 + 6,000
 Cost of Goods Sold = 41,000
Therefore, the calculation of the gross income is as follows,
Gross Income will be –
 = $1,00,000 – 41,000
 Gross Income = 59,000
The Gross Income of Griggles Inc. is 59,000.
Gross Income Formula in Excel (with Excel Template)
Fortune Inc.is carrying on the business of manufacturing chocolates. It gives you the following information: Calculate the gross income from the above details.
Solution
Step 1
Aggregate all the expenses pertaining to the cost of goods sold. Insert the formula =SUM(B4:B7) in cell B8.
Step 2
Press Enter to get the Result
Step 3
Calculate the Gross Income. Insert the formula =B3B8 in cell B9.
Step 4
Press Enter to get the Result
The Gross Income for Fortune Inc. is $40,000.
Relevance and Uses
Gross income for an individual can be found out from the financial records maintained by him. It can also be found out from the tax returns filed by the individual. Lenders use the gross income to find out whether a person qualifies for a loan or not. Thus, while applying for a mortgage, the lender looks at the gross income. Generally, when gross income exceeds a certain amount, the loan is approved. Generally, lenders will sanction a loan amount only up to a certain proportion of gross income.
While filing for income tax, gross income is used as a starting point after which deductions are reduced. After these deductions, the amount obtained is generally significantly less than gross income. Landlords also use the gross income to decide whether they should give their property on rent to a certain individual.
Gross income equation for a business can be found out from the financial statements of the organization. While calculating gross income, care needs to be taken that only the items pertaining to cost of goods sold are reduced from the gross revenue. It is important to note that all expenses are not deducted while calculating the gross income.
The difference between gross income and net income for a business needs to be found out. If the difference is very high, it implies the organization is incurring a significant amount of indirect expenses. In such a case, it should undertake corrective action to reduce these expenses. A control system would help for this purpose. The control system involves budgeting expenses and then finding out the reasons for the differences between budgeted and actual expenses. Then, remedial action should be carried out to ensure that expenses are controlled in the future.
Generally, the gross income is calculated as a proportion of its revenue. This is known as ‘gross margin’. Gross margin is one of the indicators of the profitability of an enterprise.
Recommended Articles
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