Other Comprehensive Income: What It Means, With Examples

The statement of comprehensive income begins with the net income figure drawn from the income statement, to which adjustments are made for unrealized items, such as unrealized gains and unrealized losses related to foreign currency translations and hedges. These various items are then totaled into a comprehensive income total at the bottom of the report. A positive balance in this report will increase shareholders’ equity, while a negative balance will reduce it; the change appears in the accumulated other comprehensive income account. Also known as comprehensive earnings, this is a catch-all classification for the items that cannot be included in typical profit and loss calculations because they do not stem from the company’s regular business activities and operations. Hence, they have to bypass the company’s net income statement—the sum of recognized revenues minus the sum of recognized expenses—which does include changes in owner equity. For large corporations, typical examples might include gains and losses from unmatured bond investments, changes in the company’s pension plan, and fluctuations from foreign currency transactions.

1. My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers.
2. Similarly, it highlights both the present and accrued expenses – expenses that the company is yet to pay.
3. Since net income only accounts for revenues and expenses that actually occurred during the period, external users don’t get a complete view of the company activities behind the scenes.
4. This means that any market adjustments for available for sale securities are not reflected in the net income number on the income statement.
5. Any held investment classified as available for sale, which is not intended to be held until maturity, and isn’t a loan or a receivable, may be recognized as other comprehensive income.

Whereas, other comprehensive income consists of all unrealized gains and losses on assets that are not reflected in the income statement. It is a more robust document that often is used by large corporations with investments in multiple countries. The amounts of these other comprehensive income adjustments (positive or negative) are not included in the corporation’s net income, income statement, or retained earnings. Instead the adjustments are reported as other comprehensive income on the statement of comprehensive income and will be included in accumulated other comprehensive income (which is a separate item within stockholders’ equity).

Supercharge your skills with Premium Templates

Also, this statement introduces complexity to the financial reporting package that can be annoying for the accounting department producing it, and provides information that some users have complained is excessively esoteric to be overly useful. Similarly, it highlights both the present and accrued expenses – expenses that the company is yet to pay. But if there’s a large unrealized gain or loss embedded in the assets or liabilities of a company, it could affect the future viability of the company drastically. One of the most important components of the statement of comprehensive income is the income statement. It summarizes all the sources of revenue and expenses, including taxes and interest charges.

Comprehensive income definition

The totals from each of the above sections are summed and are presented as comprehensive income. Gain unlimited access to more than 250 productivity Templates, CFI’s full course catalog and accredited Certification Programs, hundreds of resources, expert reviews and support, the chance to work with real-world finance and research tools, and more. The sum total of comprehensive income is calculated by adding net income to other comprehensive income.

This means that any market adjustments for available for sale securities are not reflected in the net income number on the income statement. FASB and many investors believe that reporting unrealized numbers unnecessarily increase earnings and make companies look more profitable than they are. Comprehensive income is the variation in the value of a company’s net assets from non-owner sources during a specific period. Unrealized income can be unrealized gains or losses on, for example, hedge/derivative financial instruments and foreign currency transaction gains or losses.

Advantages of the Statement of Comprehensive Income

A smaller business with relatively simple operations may not have engaged in any of the transactions that normally appear on a statement of comprehensive income. Another area where the income statement falls short is the fact that it cannot predict a firm’s future success. The income statement will show year over year operational trends, however, it will not indicate the potential or the timing of when large OCI items will be recognized in the income statement.

Take your learning and productivity to the next level with our Premium Templates. Other comprehensive income is also not the same as “comprehensive income”, though they do sound very similar. comprehensive income meaning Comprehensive income adds together the standard net income with other comprehensive income. Access and download collection of free Templates to help power your productivity and performance.