Definition
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.
Calculation
Comprehensive Income = Net Income + Other Comprehensive Income
Where:
Other Comprehensive Income = unrealized gains and losses on available for sale securities, foreign currency exchange rates, and changes to pension benefit obligations.
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.
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.
Example
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 |
Net Income | $625 | $519 | $431 |
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 |
Comprehensive Income | $657 | $470 | $509 |
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 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.Moneyzine EditorJanuary 4th, 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
