Gross and Net are both terms used in business and finance—gross mention the total amount of something before any expenses have been subtracted. Net, conversely, refers to the amount of something after all costs have been deducted. Both terms are similar in some ways as well as critical differences.
Main Difference
Gross and Net are both times widely used in the field of accounting. Understanding the difference between Gross and Net is essential for managing finances and assessing financial performance. However, many people are confused about the main differences between the Gross and Net. To justify them, let us discuss the main differences between Gross and Net.
What is Gross?
Gross is a term used in different fields, including business, finance, and accounting. Gross refers to the total amount of any product or service before expenses have been subtracted. In short, the total amount earned or received is called Gross.
Read More: Profit Margin vs. Markup
It can refer to massive monetary amounts such as gross margin, gross income, gross profit, etc. Moreover, the primary use of Gross is calculating Net by subtracting expenses from the gross amount. Moreover, it can be a valuable indicator of overall performance. Gross is also used to calculate taxes.
Aspects
- Useful indicator
- Calculate taxes
- Refers variety of financial amounts
- Used to calculate Net
What is Net?
Net is broadly used in accounting, finance, banking, and business. Yield refers to the amount of something after all deductions have been subtracted. Simply put, the amount remaining after subtracting expenses is said to be Net. The primary use of Net is net income or net profit.
Read More: Net Income vs EBITDA
Moreover, it is more important for understanding profitability and financial health.
Aspects
- Used to determine profitability
- The amount after the deduction
- Used to refer to net income or profit
- Good to understand the financial health
Key Differences between Gross and Net
- Gross is the total amount before deduction. On the other hand, Net is the amount after deduction.
- Gross amount minus deductions while Net amount minus all applicable expenses.
- Gross is used as a general indicator, whereas Net determines profitability.
- Gross income is used to calculate taxes, while in Net, taxes are deducted from gross income.
- Gross can indicate potential, while Net is good for understanding financial health.
Comparison chart
| Aspects | Gross | Net |
| Definition | Total amount before deduction | Total amount after deduction |
| Calculated by | Minus deductions | Subtracting all expenses from the gross amount |
| Usage | Used in financial statements and financial calculation | Used to assess the profitability |
| Examples | Gross income, Gross margin, Gross profit | Net income, Net worth, Net profit |
Conclusion
In a nutshell, we can say that Gross and Net are pretty different. These terms differ in terms of their definition, calculation, and usage.