Comprehensive Income
What does comprehensive income include?
The total sales revenue (net income) and other comprehensive income figures for an organization are combined to form comprehensive income.
The following unrealized gains or losses make up other comprehensive income:
What is comprehensive income?
Giving company stakeholders more details about the overall financial outlook of their investment is one way to use comprehensive income. To provide more information about potential income from investments and the sale of financial assets like stocks, this figure is presented as a separate amount from net income. It excludes adjustments to equity resulting from owner investments or distributions to owners.
Where do companies record comprehensive income?
Companies record comprehensive income in several ways:
Statement of comprehensive income
A statement of comprehensive income typically contains information about comprehensive income. It is disclosed separately from retained earnings, which cover a company’s net income. Instead, comprehensive income is reported as stakeholder equity.
The net income and other comprehensive income (also known as financial hedges) are the two components of the comprehensive income statement. The statement includes a comprehensive income total that adds the net income and all other comprehensive income together to represent the total comprehensive income.
Income statement
Tax statements
Comprehensive income can also be viewed as unrealized gains and losses. Depending on the method used to realize the gain or loss, these are reported in a different way for tax purposes. When a company liquidates and closes, for instance, other comprehensive income in a stock loss may be realized and moved to the category of a capital loss. The company has lost money on this stock investment, and it will now be reported as a loss in revenue rather than being included in other comprehensive income.
Since comprehensive income is a relative figure that can change depending on market conditions, economic developments, and stock performance, it is not reported as part of net income for tax purposes. When an asset is sold and the value is reported, it can be converted into regular income and reported under net income. If a company meets the requirements to classify its income as comprehensive, it must file a statement with other comprehensive income.
Comprehensive income, other comprehensive income and net income explained
Comprehensive income can be confused with other comprehensive income. The calculations accountants use to determine a company’s comprehensive income include other comprehensive income, also known as comprehensive earnings. Since net income refers to a company’s total sales revenue, other comprehensive income includes gains and losses that the company has not yet realized. As a result, it cannot be included in net income calculations.
Since net income and other comprehensive income together make up comprehensive income, it is useful to compare and contrast the three:
Comprehensive income
Here are the distinctions of comprehensive income:
Other comprehensive income
Here are specific details about other comprehensive income:
Net income
Why do companies record comprehensive income?
Businesses show the changes in their equity as a result of recognized transactions by recording comprehensive income. They also report it to take into account events in the economy other than owner-related ones during a particular financial period. Businesses must report these transactions in a separate financial statement in accordance with accounting standards.
Examples of comprehensive income
Here are some examples of comprehensive income:
Example 1: Non-business
This money is treated differently from the taxable net income from a person’s job or other sources of income when they win a prize on a television program and leave the show with the extra assets. Still, this prize money is regarded as a component of their total taxable comprehensive income.
Example 2: Business
A gain or loss from foreign currency transactions may be included in a company’s statement of other comprehensive income. These items have an impact on a company’s balance sheet, but their effects are not disclosed on its income statement. Instead, they are included on the detailed income statement, which includes all profits and losses for the company. These statements are reported during each specified financial period.
FAQ
What is meant by comprehensive income?
Unrealized gains or losses on financial instruments used as hedges or derivatives, as well as gains or losses from currency exchange transactions, are all included in comprehensive income in addition to net income. It offers a comprehensive view of a company’s earnings that the income statement does not adequately capture.
What is comprehensive income vs net income?
Having said that, the statement of comprehensive income is calculated by adding the net income, which is obtained by adding the recognized revenues and subtracting the recognized expenses, to other comprehensive income, which includes any unrealized gains or losses from the balance sheet that are not included in the income statement.
