Gross Earnings
“Gross earnings” is a term used to refer to the total income earned by an individual or a business before the deduction of taxes and other mandatory expenses, such as Social Security and Medicare contributions in the United States.
For an individual, gross earnings would include wages, salaries, bonuses, commissions, and any other income from employment before any deductions. If the person has other sources of income, such as rental income, dividends, or business income if they are self-employed, those would also be part of their gross earnings.
For a business, gross earnings could refer to its gross profit, which is the revenue from its core business operations minus the direct costs associated with producing the goods or services it sells (known as the cost of goods sold or COGS). It’s worth noting that gross profit doesn’t take into account other operating expenses like administrative costs, marketing expenses, or taxes.
It’s important to note that gross earnings give a top-line view of income, but they don’t represent the amount of money an individual or business actually takes home or retains after accounting for all expenses and taxes. That would be the net income or net earnings.
Example of Gross Earnings
let’s consider two examples – one for an individual and another for a business:
- For an Individual:
Suppose John is an employee who earns a salary of $4,000 per month. He also receives a bonus of $2,000 every quarter. John’s annual gross earnings would be:(12 months * $4,000 per month) + (4 quarters * $2,000 per quarter) = $48,000 + $8,000 = $56,000
This is the total amount John earns before any deductions. Suppose $6,000 is deducted annually from his salary for taxes, social security, and Medicare. The amount John actually receives, his net earnings, would be:$56,000 (Gross Earnings) – $6,000 (Deductions) = $50,000 (Net Earnings) - For a Business:
Suppose Company XYZ has a total revenue (from sales of its products) of $1,000,000. The cost of goods sold (COGS), which includes expenses directly related to product manufacturing like raw materials and labor, amounts to $600,000.The gross earnings (or gross profit) of Company XYZ would be calculated as:$1,000,000 (Revenue) – $600,000 (COGS) = $400,000 (Gross Earnings/Profit)
This is the amount the company has earned before accounting for other operational expenses, interest, taxes, depreciation, and amortization. If the company has additional operating expenses of $100,000 and tax of $75,000, the net earnings (or net income) would be:$400,000 (Gross Earnings) – $100,000 (Operating Expenses) – $75,000 (Tax) = $225,000 (Net Earnings/Income)
In both examples, the gross earnings give an initial view of income, but the net earnings, which take into account all the relevant expenses and deductions, provide a clearer picture of the actual take-home or retained earnings.
