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When preparing either an income statement or an income tax return for a business, accountants provide calculations for both gross and net income. The terms "profit" and "income" are largely interchangeable when discussing net and gross figures, although there is a real difference between net income and net profit after taxes.

Gross vs. Net

No matter what the context, gross numbers are always used in the calculation of net numbers. For business accounting, gross income includes all revenue that a company earns over the course of the year. Gross income incorporates all cash, checks, credit charges, rents, interest earned and dividends, among others. Net income calculations start with gross income before subtracting business expenses. Business expenses can be broken down in several ways, including cost of goods sold, operating expenses, interest paid, repairs and maintenance, etc.

Gross Income

Gross income is one of the most simple and fundamental numbers when analyzing a company and its revenue potential. Like many simple financial numbers, gross income is most useful when put into context based on the industry in question as gross income can vary greatly between industries. Gross income is sometimes called gross profit or gross margin. In some circumstances, gross income is represented as total revenue less cost of goods sold.

Net Income

Net income is another simple indicator and is used to analyze the overall financial health of a company. Net income usually requires two critical pieces of context: industry knowledge and individual company net income trends based on past performance. In short, you want to see net income increase over time and be relatively high compared to competitor firms.

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