Gross Operating Surplus (GOS) is the profit of enterprises on the goods and services they produce after they have paid their workers. It is their income from production (Output) less the cost of raw materials, services and overheads (Intermediate Consumption) and less labour costs (Compensation of Employees).

For example, a brewer will buy barley, hops, and yeast and turn it into beer which they will sell for more than they paid for the ingredients. This sale income is their Output. They will also have overheads for their brewery like heat, light, and insurance. The cost of raw materials and other overheads is called Intermediate Consumption. They then pay employees, and what remains is their Gross Operating Surplus.

Gross Operating Surplus is not all profit for the producer to spend as they like. It does not take account of the wear and tear on the buildings and machinery used in production (see Consumption of Fixed Capital). When we have deducted Consumption of Fixed Capital we have Net Operating Surplus.

Gross Operating Surplus is also before the producer has paid any corporation Taxes, interest on loans or dividends to shareholders (Investment Income): these have to be paid out of GOS. On the other hand, if the enterprise has subsidiaries or interest income from loans it has given out, the Gross Operating Surplus does not include the dividends and interest received.

So Gross Operating Surplus can be calculated by subtraction like this:

• Total Output (similar to turnover)
• Minus total Intermediate Consumption (cost of goods and services).
• Minus Compensation of Employees

Gross Operating Surplus can also be calculated by adjusting taxable or accounting profit. For a Non-Financial Corporation the following adjustments might be necessary to taxable profit:

• Add back interest paid (this is Investment Income, not Intermediate Consumption).
• Deduct interest and dividends received (this is Investment Income, not Output).
• Deduct any exchange gains or holding gains (this is not part of Output).
• Add back any holding losses or exchange losses (this is not Intermediate Consumption).
• Deduct any income on disposal of Fixed Assets (this is negative Capital Formation, not Output).
• Add back expenditure on fixed assets (this is capital formation, not Intermediate Consumption).
• Add back any bad debts written off (this is not Intermediate Consumption)
• Add back any capital allowances or allowances for depreciation (Consumption of Fixed Capital is calculated independently for National Accounts).

Gross Operating Surplus, along with Gross Mixed Income, Compensation of Employees, Taxes and Subsidies, is included when calculating Gross Domestic Product by the Income Method.

Read next: Gross Mixed Income

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