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Gross vs. Net

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The first time you looked at a paycheck, you may have seen a large number and been very happy, only to have your excitement dimmed when you cash the check for a much smaller amount. That is because gross pay and net pay refer to two different accounting concepts. They each describe income, but only one takes operating costs and other expenses into account. You might be asking yourself why accountants need two different ways to describe income in the first place. Even though you might only care about the amount of money you actually take home, federal and state governments (and creditors and bankers) are usually more concerned with the amount of money your company actually pays you.

If you aren’t sure whether the number you are looking at represents net or gross pay, continue reading to learn more.

Origin:

The word gross originated from Middle English (in the sense ‘thick, massive, bulky’): from Old French gros, grosse ‘large’, from late Latin grossus. The word net originated from Middle English nett, from Old English; akin to Old High German nezzi net.

Gross as adjective:

Gross is used as an adjective which means very obvious wrongdoing and unacceptable.

Gross human rights abuses are common nowadays.

Gross also means very rude or coarse; vulgar.

A gross, slap-and-tickle version of ‘The Taming of the Shrew is playing.

Gross as adverb:

Gross means without tax or other contributions having been deducted.

If the value of your Bond is £50,000 or more the interest will be paid gross.

Gross as verb:

To produce or earn (an amount of money) as gross profit or income is also called gross.

The film went on to gross $8 million.

Net as noun:

Net is used as a noun to describe an open-meshed fabric twisted, knotted, or woven together at regular intervals.

She bought a net blouse with flowers embroidered on it.

Net as adjective:

Net as an adjective means free from all charges or deductions: such as remaining after the deduction of all charges, outlay, or loss and excluding all nonessential considerations.

The net result of the new bridge will be fewer traffic jams.

Examples:

Much stays the same, but there are increases in income phase-outs for IRA contributors, to the adjusted gross income limits for snagging the saver’s credit, and to the overall defined contribution plan limit—up to $54,000–a boost for self-employed and small business owners and workers who have the option of stuffing their retirement nest egg with aftertax dollars. (Forbes Magazine)

Although the U.S. economy is moving relatively slowly, Roberts pointed out American consumers are the strongest element within the economy, which is measured by gross domestic product, or the total value of goods and services. (The Commercial Appeal)

Penske Automotive Group Inc.’s third-quarter net income rose 1.1 percent as gains in gross profit margins in the U.S. for new and used vehicles were offset by foreign exchange-related losses and lower global profit margins for vehicle sales. (Crain’s Detroit Business)

Gross or net:

Both net and gross are ways to describe a person’s or company’s income. Gross describes the total before deductions and taxes. Net describes the total after the deductions and taxes. On a paycheck, the net pay will be your “take home” pay. Since net and take home both contain the letter T, you can use this phrase to remember the meaning of the word net in financial contexts.

 

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"Gross vs. Net." Grammar.com. STANDS4 LLC, 2017. Web. 22 Nov. 2017. <http://www.grammar.com/gross_vs._net>.

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