Difference between Gross and Net Amount:- It is very common to hear the terms of gross and net , both when it comes to wages, as when we look at the income statement a company or when we say a macroeconomic data. The gross and net measure the same magnitude , but they are different concepts and must know how to distinguish them so that there is no confusion. The two concepts are quantitative expressions used for the calculation of economic magnitudes.
Difference between Gross and Net Amount
The difference between gross and net that should be clear is that a net amount is the final amount left after making any changes to the gross amount, in most cases after conducting some type of discount (which are generally imposed ):
Net = Gross – Discount
Independently we could define gross as the amount total result of some activity, such as gross wages, gross sales or gross domestic product . The net instead is the final amount remaining as a result of having applied a discount to something rough, the above examples we would net salary, net sales and net domestic product. Let’s look at the most common cases where gross and net expressions are used.
Gross Salary and Net Salary
To understand the structure of a payroll is essential to know the difference between the concepts of gross salary and net salary. Especially when negotiating our wages and calculate how much money we will collect at the end of the month.
Net or net wage is the monetary amount received by the worker , i.e, the money you receive in your account after deducting taxes and contributions to Social Security . The gross salary in exchange, is the total amount before these with holdings are applied.
Net Salary = Gross Salary – Taxes – Social Security
In a Company’s Income Statement
When we analyze the income statement of a company we also find gross and net terms.
An example is the gross profit and net profit . Gross profit is simply the result of subtracting total sales the cost of those sales, while net profit plus cost of sales also are subtracted taxes, interest, depreciation and overhead costs business. Therefore the relationship between gross profit and profit net is as follows:
Net profit = Gross profit – taxes – interest – depreciation – overheads
In the case of gross margin and net margin is exactly the same, since the gross margin is gross profit divided by sales and net margin is net profit divided by sales also. The net margin will be equal to the gross margin discounting the taxes, interest, depreciation and general expenses of the company. The margin is used to determine the percentage of benefit we have of each product or service that we sold.
Another example would be the net sales , which are the result of subtracting refunds, bonuses, rebates and discounts to gross sales.
Macroeconomic Data
In macroeconomics these expressions are also used and as in the previous cases, the net value is equal to the gross value minus a discount . For example, the difference between the net domestic product (NDP) and the gross domestic product (GDP) is that the PIN is equal to GDP less the costs of raw materials, services and depreciation.
PIN = GDP – cost raw materials – cost services – depreciation
Weight
These terms are also used in product weight. The gross weight is generally equal to the net weight of the product plus the weight of the packaging.
Gross Weight = Net Weight + Container
Exceptional Cases
As we have seen, the net is always the basis of what we are measuring , the heart of the product. The gross is simply the result of adding taxes to that base. According to the Royal Spanish Academy (RAE), in a quantity of money, the gross is that which has not experienced any withholding or discount. However, there is an exceptional case, as in the case of prices to the consumer .
Net and Gross Price
In the case of prices, the net value is greater than the gross value. Since the price net is paid by the final consumer price including taxes. For example, when an entrepreneur sets the price of a product, it sets the price at which to sell to cover their costs and have some benefit, at this price is known as gross price. After added taxes ( VAT in this case), giving final value of the net price.
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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