Gross Income Formula Step By Step Calculations

Gross Income Formula

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
To calculate it for a business, the following steps should be followed:
Step 1: Find out the total revenue of the businessStep 2: Find out the cost of goods sold for the businessStep 3: Calculate using the formula: Gross Income = Total Revenue – Cost of Goods Sold

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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

Annual Salary: 120000

Per Month

=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 a week. His hourly wage is $10. Assume that there are 52 weeks in a year. Also, he holds some shares. As a result, he gets an annual dividend income of $1,000.

Besides, his annual income includes rent of $4,000 and interest on a savings bank account of $1,000. He pays income taxes of $500 in the year. Calculate the annual gross annual income of Mathews Smith.

Use the below-given data for calculation

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

Total Salary Income

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

Therefore, the calculation is as follows,

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

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

Example #3

Grriggles Inc. is engaged in the manufacturing of shoes. The company’s Chief Financial Officer (CFO) digs into the financials and obtains certain data. Its gross revenue is $1,00,000. Also, it incurs the following expenses:

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

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

Calculation of Cost of Goods Sold

= 10,000 + 20,000 + 5,000 + 6,000Cost of Goods Sold = 41,000
= $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: 60000Cost of Raw MAterial: 10000Electricity for Factory: 5000Direct Labor: 3000Depreciation of Equipment: 2000

Step 1

Aggregate all the expenses about the cost of goods sold. Then, insert the formula =SUM(B4: B7) in cell B8.

Step 2

Press Enter to get the Result

Step 3

Insert the formula =B3-B8 in cell B9.

Step 4

Relevance and Uses

Gross income for an individual can be found in the financial records. It can also be found in the tax returns filed by the individual. Lenders use it to determine whether a person qualifies for a loan. Generally, the loan is approved when gross income exceeds a certain amount. 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 organizationFinancial Statements Of The OrganizationFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more. While calculating it, care needs to be taken that only the items about 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 and net income for a business needs to be found. If the difference is very high, the organization is incurring significant indirect expensesIndirect ExpensesIndirect expenses are the general costs incurred for running business operations and management in any enterprise. In simple terms, when you want to buy grocery from a supermarket, the transportation cost to get you to the supermarket and back is the indirect expenses.read more. 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 determining 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 enterpriseProfitability Of An EnterpriseProfitability refers to a company’s ability to generate revenue and maximize profit above its expenditure and operational costs. It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company’s performance.read more.