What Are Gross Earnings?
Gross earnings, for individuals, refer to the total income earned before the application of any tax deductions or adjustments. For public companies, gross earnings are an accounting convention, referring to the amount left over from total revenues over a specified time period once the cost of goods sold (COGS) has been deducted.
Understanding Gross Earnings
Gross earnings for an individual are generally the first line of an employee's gross earnings on a paycheck stub. Typically, this is followed by a list of deductions such as income taxes, and the difference between the gross earnings and the deductions is the employee's net income or the amount that appears on his paycheck
To understand individual gross earnings, consider John, who earned a total of $50,000 for the recently completed fiscal year. He also paid $10,000 in income tax, retirement contributions, and Social Security payments. In this case, his gross earnings are $50,000, and his net earnings are $40,000.
Gross Earnings and Adjusted Gross Income
For tax purposes, the Internal Revenue Service (IRS) distinguishes gross earnings, also called gross income, and adjusted gross income (AGI). Gross income includes all of the money you have earned through the year including wages, income from a business, alimony payments from a former spouse, rental income, interest and a few other types of payments.
The IRS allows taxpayers to take a select number of above-the-line deductions from gross income, and these include certain expenses incurred by educators, eligible moving expenses, contributions to IRA accounts as well as a few others. The difference between your gross income and these deductions is your AGI. When completing your income tax return, you subtract a standard deduction or a list of itemized deductions from your AGI, and the difference yields your taxable income, the amount upon which the IRS levies an income tax.
Gross Earnings on Business Income Statements
A company's gross earnings are reported periodically on its income statement. The first line of the income statement reports a company's total sales and revenues for a given time period, while the COGS and gross earnings often appear on the second and third lines of many income statements. The difference between revenue and COGS is a company's gross earnings. The COGS includes costs directly related to the company's product, such as materials for manufacturing, inventory for shops, and labor costs. Indirect costs are not included in the COGS.
Once a business has calculated its gross earnings, it may then subtract the rest of its business expenses, including costs such as utilities, loan repayments, office supplies, contractor fees, and many other expenses. The difference between the business's gross earnings and its operating and capital expenses is its profit.