[0:01]Gross salary versus net salary. Gross revenue versus net revenue. Gross profit versus net profit. You can think of the gross amounts as before, and the net amounts as after. Let's discuss what is between gross and net in each of these cases. First example, from the world of payroll accounting. Gross salary, the amount advertised in the job posting, usually on an annual basis. A $75,000 job refers to a job that offers $75,000 in gross annual salary. Net salary, the take-home pay, usually on a monthly basis. $75,000 in gross annual salary roughly translates to a monthly net salary of $4,778. Big disclaimer, don't take that as a given, please do your own research for the country and state that you live in, as these amounts can vary very significantly. What types of deductions are made to go from gross to net salary? Here are the main elements without trying to provide an exhaustive list. Federal income tax, state income tax, social security tax, medical leave and family leave insurance, and others. Second example, from the world of corporate financial statements. Gross revenue versus net revenue. Gross revenue is how much a company has initially invoiced to its customers for delivering goods or performing services. Net revenue is how much of that invoiced amount actually ends up in the income statement. Let's put some numbers to that. If gross revenue for a company is 104, then we generally need to deduct three different live items in order to get to net revenue. Returns, the value of items that customers send back to the business. Let's assume the value for this is two. Allowances, price reductions given to customers, often due to issues like damaged goods. Let's assume these are valued one. Discounts, price reductions offered to encourage sales or reward early payments. Let's assume these are also valued one. Gross revenue of 104 minus returns, allowances and discounts of in total four, get us to a net revenue of 100.
[2:37]Another example, also from the world of corporate financial statements. Gross profit versus net profit. Gross profit equals net revenue minus cost of goods or services sold. Net profit, or net income, equals gross profit minus all other expenses in the income statement. If we continue with the same example, then net revenue is 100. Cost of goods sold is 40. If we deduct cogs from net revenue, we get to the first subtotal in the income statement, gross profit of 60. We then deduct operating expenses, which in accounting terms are the sum of selling, general and administrative expenses, as well as research and development expenses. If operating expenses are 20, then we get to operating income of 40. Another subtotal. If we assume the company has no other income and no interest expenses, then the only item left to deduct is corporate income taxes of 10. The bottom line, net income or net profit is 30. Gross is before, net is after.
