Definition
The term accumulated other comprehensive income refers to a balance sheet line item used to summarize other comprehensive income in the current and prior periods. Also known as AOCI, this balance sheet line item is used to summarize the unrealized gains and losses appearing as other comprehensive income that remain unsettled.
Accumulated other comprehensive income appears in the stockholders' equity section of the balance sheet.
Explanation
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. 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.
The consolidated statement of comprehensive income provides investor-analysts with insights into the unsettled transactions that could result in a gain or loss, and how these transactions would affect net income in the current period. The general ledger account accumulated other comprehensive income, or AOCI, is a balance sheet line item that summarizes the gains and losses that have occurred in the current period, and in the past, and that remain unrealized.
When a gain or loss is eventually realized, a debit or credit is made to the balance sheet line item accumulated other comprehensive income, and a corresponding credit or debit is made to a line item on the income statement. Since the now-realized gain or loss has served to increase or lower net income, the transaction has effectively moved the dollars from accumulated other comprehensive income to retained earnings.
Example
The following illustrates how accumulated other comprehensive income would appear in the stockholders' equity section of the balance sheet:
Stockholders' Equity | Current Year | Prior Year |
Common Stock: 1,000,000 shares, par value $0.01 | $10,000 | $10,000 |
Additional Paid-in Capital in Excess of Par | $25,000,000 | $25,000,000 |
Treasury Stock: 100,000 shares at $24.00 per share | ($2,400,000) | ($2,400,000) |
Retained Earnings | $48,525,000 | $44,643,000 |
Accumulated Other Comprehensive Gain or (Loss) | ($672,000) | ($705,600) |
Total Stockholders' Equity | $70,463,000 | $66,547,400 |
Related Terms
- The financial accounting term owner’s equity is used to describe the resources that are owned by the common and preferred stock shareholders of a company. Owner’s equity is reported on a company’s balance sheet.
Moneyzine EditorNovember 29th, 2022 - The financial accounting term retained earnings is used to describe the portion of net income that is not distributed to common or preferred stockholders in the form of dividends, and is held by the company for future use. Retained earnings appear in the owner's equity section of the company's balance sheet.Moneyzine EditorSeptember 21st, 2023
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.Moneyzine EditorJanuary 11th, 2024- The term other postemployment benefits refers to a number of employer-sponsored programs a company may provide to former employees. Other postemployment benefits can include vision, dental and healthcare insurance, prescription medications, life insurance, as well as legal services. As the name implies, OPEB does not include the costs associated with defined benefit pension plans or other sources of retirement income provided by employers.Moneyzine EditorSeptember 20th, 2023
