Name a key difference between gross and net income.

The correct answer highlights that gross income represents total revenue before any expenses are deducted, while net income is the amount left after all expenses, including costs of goods sold, operating expenses, interest, taxes, and any other deductions, have been subtracted from the gross income.

This distinction is crucial in financial analysis, as it allows businesses to understand the profitability of their operations in stages. Gross income gives an initial view of revenue, highlighting the effectiveness of sales but does not account for the costs incurred to generate that revenue. In contrast, net income provides a complete picture of financial health by showing what remains for the owners or shareholders after all financial obligations have been met, offering insights into the true profitability of a business.

Understanding this difference is essential for making informed business decisions, evaluating performance, and conducting financial reporting.