Comprehensive IncomeDefined along with Examples

Written By:
Lisa Borga

Comprehensive income is a full picture of a company’s profit or loss that accounts for both net income and the changes in owner’s equity originating from nonowner sources.

This allows stakeholders to gain a more complete view of a firm’s performance by accounting for alternative sources of income.

What is Comprehensive Income?

Comprehensive income provides a full picture of the changes in owner’s equity that occurs during a period.

It does this by adding other comprehensive income, which includes unrealized gains and losses, with net income, which is a company’s sales revenue.

Because unrealized gains or losses have not yet actually occurred in an accounting period, they are not included in the income statement.

Instead, all sources of income that are not included in the income statement will be reported under accumulated other comprehensive income on the balance sheet.

This includes foreign currency transactions, decreases and increases of the fair value for available-for-sale securities (previously considered impaired), derivative financial instruments, pension, and other retirement plan payments, debt securities, cash flow hedges, and performance of an investment portfolio.

Exclusions from Comprehensive Income

There are some items that are not included in comprehensive income, such as changes in equity caused by the owner, including the purchase of treasury shares or the sale of stock.

Income resulting from non-owner sources does increase the company’s value.

However, due to the fact that it is not coming from normal business operations, it should not be included in the company’s traditional income statement.

Recording Comprehensive Income in Financial Statements

Generally, companies will attach a comprehensive income (CI) statement beneath its own heading on the bottom of the income statement.

Although, in some cases, it is provided as part of the footnotes.

The comprehensive income statement takes the net income from the income statement and adjusts this figure by including any non-owner sources of income.

After the net income is adjusted, it is recorded on the balance sheet as “accumulated other comprehensive income.”

Including Comprehensive Income in Financial Statements

The income statement is one of the major financial statements.

It is essential for letting investors and other interested parties see a summary of a company’s revenues and expenses, which includes interest and taxes.

The net income is listed at the bottom of the income statement, but it only includes income and expenses that have been incurred or earned.

However, large companies will sometimes have gains or losses from changes in the value of some of their assets.

The effect these activities have will show up on the cash flow statement, but their effect on earnings will be located on the income statement in comprehensive income.

The statement of comprehensive income also includes net income.

This statement covers the same period of time as the income statement, but it has two sections, one that includes net income from the income statement and the other that includes comprehensive income.

This statement ends with the total comprehensive income.

This total was obtained by combining the net income and the other comprehensive income.

Some companies will combine the traditional income statement with the statement of comprehensive income.

But, most companies with comprehensive income will file this form in addition to the income statement.

However, companies are not required to file this statement unless they meet the criteria of classifying some of their income as comprehensive income.

Examples of Comprehensive Income

One example of comprehensive income would be a shopper that wins a prize a store is giving away as part of their grand opening.

The prize would not be part of the shopper’s normal earned income since it is not related to their occupation.

However, it would be part of their taxable comprehensive income.

For a business, the comprehensive income statement might include the company’s gains or losses from foreign currency transactions.

These transactions would affect the business’s balance sheet; however, they would not be reported on the traditional income statement.

In lieu of reporting this income on their income statement, they would report the income on a comprehensive income statement.

The CI statement is used to report all of the business’s gains and losses.

Key Takeaways

• Comprehensive income includes unrealized gains and losses that are not included in net income.
• Comprehensive income is an expansion of net income that accounts for both net incomes as well as other sources of gain and loss that are excluded from net income.
• Comprehensive income is not required to be included in the balance sheet; however, it can often be found in the footnotes.