In financial accounting, income is broken down in a multitude of ways, and firms have some latitude on when to recognize and report their earnings. To compensate for this, the Financial Accounting Standards Board (FASB) has firms collect and report information that helps to provide perspective for investors and analysts. Two such measurements are comprehensive income and other comprehensive income.
Comprehensive Income
Comprehensive income is used to measure the change in an owner’s interest in a business. This is done by charting the change in a company’s net assets from nonowner sources, including all income and expenses that usually bypass the income statement because they have not yet been realized. Comprehensive income is normally listed in a separate statement than income, which does include changes in owner equity. Comprehensive income is calculated by adding net income, the sum of recognized revenues minus the sum of recognized expenses, to other comprehensive income.
Other Comprehensive Income
Other comprehensive income is a catch-all for all of the items that cannot be included in typical profit and loss calculations. Examples of the types of changes captured by other comprehensive income include:
- Gains and losses from derivative instruments
- Debt security unrealized gains and losses
- Pension or other retirement plan gains and losses
- Foreign currency transaction adjustments
- Available-for-sale securities unrealized gains and losses
These items occur rather infrequently for smaller businesses, so other comprehensive income is most important for valuing larger corporations. Watching the unrealized performance of a firm’s investment portfolio can reveal the possibility of major losses down the road. You can see how overseas operations and currency hedging affects corporate performance. Comprehensive income and other comprehensive income help bring complicated financial reporting into a clearer view.