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What is the Statement Of Other Comprehensive Income?

The Statement of other comprehensive income represents a company’s change in equity during a specific period from transactions and events that are typically non-cash gains and losses. When the gains and losses crystalize into cash, they are usually reflected on the income statement and removed from other comprehensive income. Other comprehensive income provides additional detail to the balance sheet’s equity section, which identifies the change in stockholder’s equity beyond the net income listed on an income statement. The statement provides details of entries in the OCI account.

Some of the transactions included in other comprehensive income are revenue, expenses, losses and gains not realized in the income statement. The reason a company has not realized those transactions is that they have not yet been completed, such as a sale of an investment (preventing a company from paying dividends to its shareholders with the gains), but its value has changed since acquisition.

A company recognizes the interim adjustments in other comprehensive income, which is a line item on a company’s balance sheet or in the consolidated statement of equity. Once a company has completed the transaction, it will move the gain or loss out of other comprehensive income and will report it in the income statement.

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Example

The Coca-Cola Company – Statement of Comprehensive Income 2018

Points To Note

  • Foreign currency translation – When a corporation reports the consolidation in home currency (US$, in this case), but its foreign subsidiary reports in a local currency, the value of the account will change due to foreign currency translation, even if the monetary amount in local currency does not. As long as a corporation has not sold an asset, the translation adjustment will remain in OCI. When the corporation sells the asset, the adjustment will come out of OCI and go into the income statement.
  • Unrealized gains (losses) available-for-sale securities – Referred to as fair value through other comprehensive income. Investments are marked to market at each accounting period. If there are gains or losses from the mark to market transactions, a company reports it under OCI. When a company sells the investment, it records the gains and losses in the income statement, where they are moved to retained earnings.
  • Gains (losses) on derivatives – Same as available-for-sale securities.
  • Change in pensions and other benefit liabilities – A company will report an under or over-funded amount in the balance sheet and in the Other Comprehensive Income account.

Dividends paid to shareholders and sale of stock or purchase of treasury shares are excluded from the statement because these stem from a contribution of the company’s owners.

The Importance Of Statement Of Other Comprehensive Income

The statement provides stakeholders with more detail in the change in equity between two accounting periods. Other comprehensive income or OCI provides investors with the true value of a company’s assets and potential future earnings if the company’s assets are sold and gains are realized.  In other words, it gives financial statement readers a more comprehensive view of a company’s financial status. The other aspect of realized gains or losses is that it enables investors to see is if there are any potential losses in the future and how a company is managing its investments.

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