Comprehensive income
What exactly is ‘comprehensive income’?
Comprehensive income is the total non-owner change in equity for a reporting period. This change encompasses all changes in equity other than transactions from owners. Most of these changes appear in the income statement. A few special types of gains and losses are not shown in the income statement but as special items in shareholder equity section of the balance sheet.
Since these comprehensive income items are not closed to retained earnings each period they accumulate as shareholder equity items and thus are entitled “Accumulated Other Comprehensive Income” and is sometimes referred to as "AOCI".
Accumulated other comprehensive income is a subsection in equity where "other comprehensive income" is accumulated (summed or "aggregated").
The balance of AOCI is presented in the Equity section of the Balance Sheet as is the Retained Earnings balance, which aggregates past and current Earnings, and past and current Dividends.
Other comprehensive income
Other comprehensive income is the difference between net income as in the Income Statement (Profit or Loss Account) and comprehensive income, and represents the certain gains and losses of the enterprise not recognized in the P&L Account. It is commonly referred to as "OCI".
In practice, it comprises the following items:
1. Foreign currency translation adjustments on foreign subsidiaries
2. Changes in the fair value of available-for-sale financial assets
3. Actuarial gains and losses arising on a defined benefit pension plan
4. Revaluations of property, plant and equipment
5. Changes in the fair value of a financial instrument in a cash flow hedge
While the AOCI balance is presented in Equity section of the balance sheet, the annual accounting entries, as flows, are presented sometimes in a Statement of Comprehensive Income. This statement expands the traditional Income Statement beyond Earnings to include OCI in order to present Comprehensive Income.
Under the revised SFAS 1, all non-owner changes in equity (comprehensive income) must be presented either in one Statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income).
