Gross Income Formula

Gross Income Formula

Gross Income is used in reference to the individuals and businesses. For individuals, it is calculated as total income earned before any deductions and taxes and includes income from all sources including rent, dividends, interest, etc, whereas, for a a business it is calculated the revenue earned from the sale of goods and services minus the cost of goods sold.

Gross Income Formula  (individual) = Sum of income from all sources earned by individual
  • To do the calculation 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
Gross Income Formula (Business) = Total Revenue – Cost of Goods Sold
  • To calculate it 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 using the formula: Gross Income = Total Revenue – Cost of Goods Sold

Gross Income Formula

Examples

You can download this Gross Income Formula Excel Template here – Gross Income Formula Excel Template

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

  • Annual Salary: 120000

Per Month

Gross Income Formula Example 1.1

=120000/12 = 10,000

Example #2

Mathews Smith is an employee with several 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. Also, he holds some shares. He gets an annual dividend income of $1,000.

Besides, 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 below-given data for calculation

  • Number of Hours in a Week: 40
  • Hourly Wage: 10
  • Number of Weeks: 52
  • Dividend Income: 1000
  • Rent: 4000
  • Interest on Savings Bank Account: 1000

Total Salary Income

Gross Income Formula Example 2.1

  • = 40 * 10 * 52
  • Total Salary Income = 20,800

Therefore, the calculation is as follows,

Gross Income Formula Example 2.2

= 20,800 + 1,000 + 4,000 + 1,000

Example 2.3

Note: Gross Income is obtained before deductions of any taxes. Hence, income taxes of $500 are not deducted while calculating it.

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. Also, it incurs the following expenses:

  • Direct Labor: 10000
  • Raw Material Cost: 20000
  • Packaging: 5000
  • Transportation Costs: 6000
  • Revenue: 100000

Calculate the gross income for Griggles Inc. from the above information.

Solution

Calculation of Cost of Goods Sold

Example 3.1

  • = 10,000 + 20,000 + 5,000 + 6,000
  • Cost of Goods Sold = 41,000

Therefore, the calculation is as follows,

Gross Income Formula Example 3.2

Example 3.3

  • = $1,00,000 – 41,000 = 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.

  • Gross Revenue: 60000
  • Cost of Raw MAterial: 10000
  • Electricity for Factory: 5000
  • Direct Labor: 3000
  • Depreciation of Equipment: 2000

Solution

Step 1

Aggregate all the expenses pertaining to the cost of goods sold. Insert the formula =SUM(B4: B7) in cell B8.

Example 4.1

Step 2 

Press Enter to get the Result

Gross Income Formula Example 4.2

Step 3

Insert the formula =B3-B8 in cell B9.

Example 4.3

Step 4

Press Enter to get the Result

Gross Income Formula Example 4.4

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 it to find out whether a person qualifies for a loan or not. 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 this income.

Gross income for a business can be found out from the financial statements of the organization. While calculating it, care needs to be taken that only the items pertaining to the 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 significant 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. It is known as ‘gross margin.’ Gross margin is one of the indicators of the profitability of an enterprise.

Recommended Articles

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