What does VAT included
Gross denotes the status of an amount before tax deduction and before depreciation. This contrasts with net, which means that taxes have already been deducted. The most common situation in which the two terms are used is in relation to prices. But the principle of differentiating between gross and net can also be applied to other areas, such as profits and income or also non-monetary units such as weight.
With Billomat it is possible to choose both net and gross price basis. Give it a try when you write invoices.
Gross - what does it mean?
The term “gross” is derived from the Latin term “brutus”, which means “impure”. Viewed in an economic context, the sum of money can be described as “impure” from which no deductible amounts have yet been deducted.In practice, gross refers to an amount including tax or a unit of measurement with packaging.
Netto - what does that mean?
The term “net” was also borrowed from Italian and means something like “pure”. In an economic context, the net can be understood as "pure" from all deductions such as taxes and depreciation. In practical use, Netto designates an amount without applicable tax or a unit of measurement without packaging.
How do you determine gross and net?
Not only companies have to Difference between gross and net know exactly and be able to estimate prices very quickly. Consumers are also very often confronted with gross and net in everyday life. Therefore, they too have to recognize the difference and take it into account when shopping or when dealing with craftsmen. The distinction is easier if you are well informed about the relationship between gross and net. So you can classify the two terms, decide on an application at short notice and make a quick calculation.
What are the formulas for calculating gross and net?
Gross and net always have the same mathematical relationship to one another. Because gross denotes a total amount, while net denotes the remaining amount without the surcharges contained in each case. From the context, a simple formula can be used for gross and net, which leads to the determination of the required amount.
Formula for gross: Gross = net + surcharges
Formula for net: Net = gross surcharges
Formula for surcharges: Surcharges = gross - net
Anyone who has difficulty distinguishing the two terms can remember that gross is always greater than net. Because net is only part of the gross.
In which application areas do gross and net appear?
The terms gross and net appear in three central contexts:
- Weight of goods
Gross and net prices
When buying goods or paying for a service, customers usually pay gross prices that include VAT. But net prices are also important for certain situations.
The net price denotes the purchase price and thus the price for goods to which no tax has been added. Thus, VAT is not included in the net price. Companies subject to VAT use net prices as a basis for their pricing and only pay attention to net prices when making purchases. This is because you deduct the VAT that is incurred on deliveries and other services from your VAT liability via the input tax deduction. Due to the possibility of offsetting between VAT owed and input tax paid, companies subject to VAT are not charged with VAT when purchasing goods or when commissioning service providers. Therefore, effectively only the net prices that they pay for their purchases apply to them.
Consumers, on the other hand, have to pay gross prices. Because the value added tax included in the gross price is a so-called consumer tax, which is charged to the end user of a product or service. For consumers, therefore, only the price that they actually pay for their purchase is usually what counts.
Gross and net wages
When employees receive their salary, only the net salary is credited to their account. It is true that both contracting parties have agreed a gross wage in the employment contract that the employer owes his employee every month. But the Gross wage refers to the total salary from which taxes and social security contributions are still to be paid. Thus, the employer has to pay the contractually agreed gross wage overall. But he has to pay part of the gross wage in the form of taxes and social security contributions to the tax office and to the social security agencies. He only pays the remaining net salary to his employee.
Gross and net weight
Numerous goods are offered for sale in their packaging. Many automatically packaged goods therefore have a label that indicates at least the net weight of the contents or both the net and gross weight. Because when shopping, consumers want to be informed in particular about how much weight the content of the desired article has. If, for example, the weight of 500 grams is stated on a package of vegetables, consumers must be able to assume that they are buying vegetables with a weight of 500 grams. On the other hand, the weight of the packaging does not interest the buyer in the supermarket. For this reason, many packages only show the net weight, which expressly indicates the weight of the contents of the package.
The gross weight, on the other hand, is important for shipping services. Because this is where the total weight that is to be transported counts. Therefore, the weight of a parcel, which is weighed when the parcel is sent, always refers to the gross weight, which results from the weight of the contents and the packaging.
What does net mean for cash discount payments?
Many companies offer discount payments. The discount is a discount that is applied to the invoice amount. If a cash discount is granted, the corresponding invoice has a corresponding formulation for the payment target, such as: "3 percent discount within 14 days, 30 days net". With this formulation, the supplier grants his customer a discount. The specific wording means that the customer can deduct 3 percent of the gross amount of the invoice as a discount if he pays within 14 days of receiving the invoice. If, on the other hand, he only pays after the discount period has expired, he must pay the full invoice amount without deduction within 30 days of receipt of the invoice.
Use in different areas - examples
In retail, it is common to use either net prices or gross prices, depending on the area.
- In the so-called B2B (Business to Business) area, the gross price is not used and the net price is used instead. This is because companies are not required to pay sales tax. You are able to deduct any VAT amounts paid (see also: VAT rate) from the VAT amounts you have received yourself. This procedure is called input tax deduction. That is why only the net price matters for companies.
- Meanwhile, in the B2C (Business to Customer) area, the end customer is addressed directly, which is why it is necessary to show the sales tax and thus to use a gross price. Because the end customer does not have the option of deducting input tax.
An example of the use of gross / net
If you buy something in the supermarket for 11.90 euros, you buy goods with a net value of 10.00 euros. Added to this are 1.90 euros VAT. The value on the price tag is the gross price, i.e. the price including taxes. The supermarket is an example of the so-called B2C area, i.e. the part of the market in which sales are directed directly to end customers (consumers). Here it is common to use gross prices. It is different in the B2B area, in which net prices are used.
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