The statement of comprehensive income reports net income and qualifying nonowner changes that U.S. GAAP excludes from earnings.
Comprehensive income is the change in equity of a business during a period from transactions, events and circumstances arising from nonowner sources. It includes every change in equity except investments by owners and distributions to owners.
The purpose and objectives of the statement address a reconciliation: U.S. generally accepted accounting principles (GAAP) exclude certain gains and losses from net income while including them in comprehensive income.
Its objectives are completeness, equal prominence for items excluded from net income, and reconciliation of nonowner changes. Beginning equity, adjusted for retrospective corrections, plus comprehensive income and owner contributions less owner distributions reconciles to ending equity.
The structure of the statement of comprehensive income presents net income followed by OCI.
Other comprehensive income (OCI) consists of revenues, expenses, gains and losses that U.S. GAAP includes in comprehensive income but excludes from net income.
Common mistakes
- Omitting the Year 2 reclassification produces $513,500 instead of $462,500. The $51,000 realized gain already in net income must be removed from OCI.
- Adding the $10,000 trading gain again, net of tax, produces $48,750 OCI instead of $41,250. It already entered net income.
- Subtracting the $50,000 dividend produces $411,250 comprehensive income. Owner distributions are excluded from that performance measure.
Bottom line
- Comprehensive income is every change in equity from nonowner sources; it equals net income plus other comprehensive income.
- Two permitted formats: one continuous statement, or an income statement immediately followed by a statement of comprehensive income; the statement of changes in equity is not a substitute.
- The statement carries the same prominence as the other primary statements, comprehensive income is never shown per share, and not-for-profit entities are exempt.
- Five OCI categories: available-for-sale debt holding gains and losses, translation adjustments, cash flow hedges, defined benefit plan adjustments (measurement belongs to BAR), and instrument-specific credit risk on qualifying fair-value-option liabilities.
Exam shortcut
Separate owner transactions, net-income items and qualifying OCI before applying tax effects. A realized gain already in net income may require a current- or prior-period OCI reclassification. Roll AOCI forward using total OCI after reclassifications. Comprehensive income and OCI have no per-share presentation; an equity statement alone does not satisfy their performance-statement requirement.
The full lesson (about 3,673 words, 24 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- I.A3
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