Gross

In economics, the term gross means total or “before deductions.” It is not used alone, but in conjunction with other finance/economic terms. Some of the most common financial and economic terms using the word gross include: gross income, gross profit, gross revenue, gross domestic product, and gross national product.

The use of gross as an adjective/modifier is very important in economics. There is a need to qualify the kind of income being referred to, since the total revenue minus expenses (called net income) is also an important factor that is tracked and reported. It is important to distinguish between the different incomes since these reflect how well an entity (whether a company or government) is doing.

To further explain the difference between gross and net totals, let’s look more closely into gross revenue, gross income and net income.

The gross revenue of a company is the total cash in flow. Gross income, on the other hand, is the total revenue of a company minus the cost of goods sold. Net income is the total revenue minus the cost of doing business, which includes taxes, depreciation and all other expenses.

As you can see, the company’s actual bottom line is reflected by the net income instead of the gross income. Both, however, are needed to analyze whether the company’s profit is being limited by cash inflow or by expenses so that the company can adjust their business strategies accordingly.

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