The term comprehensive income refers to the total change in the equity of a business from transactions and other events and circumstances from non-owner sources. Comprehensive income includes both net income and unrealized gains and losses a company incurs in the current period.
Comprehensive Income = Net Income + Other Comprehensive Income
- Other Comprehensive Income = unrealized gains and losses on available for sale securities, foreign currency exchange rates, and changes to pension benefit obligations.
Also known as comprehensive earnings, the Statement of Financial Accounting Standards No. 130 defines comprehensive income as the change in equity of a company resulting from transactions and other events from non-owner sources in a given period of time.
Comprehensive income takes the company’s net income and adds to it what is termed other comprehensive income. This would include unrealized gains and losses on securities that are available for sale, foreign currency adjustments, as well as changes to certain pension benefit obligations.
Companies will oftentimes report this information on a consolidated statement of comprehensive income. That schedule will start with net income taken from the income statement and add to it other comprehensive gains and losses, which are typically shown net of taxes, to derive the company’s comprehensive income.
The net gain or (loss) for other comprehensive income is not reported on the income statement; rather, it is reported as accumulated other comprehensive income and is shown as an adjustment to stockholders’ equity on the balance sheet. This value provides investors with insights into all of the financial events that change the value of a stockholder’s ownership in the company.
The following illustrates how comprehensive income may be reported in a company’s financial statements:
|Consolidated Statement of Comprehensive Income||Year 1||Year 2||Year 3|
|Unrealized Gain or (Loss) on Available for Sale Securities||$16||($43)||$25|
|Unrealized Gain or (Loss) on Currency Exchange Rates||($8)||($21)||$17|
|Adjustment to Pension Benefit Obligation||$24||$15||$36|
|Other Comprehensive Income (Loss), Net of Taxes||$32||($49)||$78|