What is comprehensive income?

Comprehensive income is defined by the Financial Accounting Standards Board, or FASB as the change in equity [net assets] of a business enterprise during a period from transactions and other events and circumstances from non owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income is the sum of net income and other items that must bypass the income statement because they have not been realized, including items like an unrealized holding gain or loss from available for sale securities and foreign currency translation gains or losses. These items are not part of net income, yet are important enough to be included in comprehensive income, giving the user a bigger, more comprehensive picture of the organization as a whole. Items included in comprehensive income, but not net income are reported under the accumulated other comprehensive income section of shareholder's equity. It is income/loss from sources other than equity holders, normal operations or discontinuation of normal operations. Some popular components of Comprehensive income are: Certain currency translation Gain/Loss Unrealized Gain/Loss on investment holdings Pension and Postretirement Liability adjustments Gain/ Loss from the effective portion of some hedge investments

What are the reporting requirements for comprehensive income? According to SFAS 130, other comprehensive income (OCI) is part of total comprehensive income but generally excluded from net income. Prior to SFAS 130, these three itemsforeign currency translation adjustments, minimum pension liability adjustments, and unrealized gains or losses on available-for-sale investmentswere disclosed as separate components of stockholders equity on the balance sheet. Under SFAS 130, they are to be reported as OCI. Furthermore, they must be reported separately, as FASB decided that information about each component is more important than information about the aggregate. Later, net unrealized losses on SFAS 133 derivatives were also included in the definition of OCI. The intent of SFAS 130 was that if used with related disclosures and other information in financial statements, the information provided by reporting comprehensive income would assist investors, creditors, and other financial statement users in assessing an enterprises economic activities and its timing and magnitude of future cash flows.

 While FASB required that an enterprise shall display total comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements that constitute a full set of financial statements it did not specify which format was required, except that net income should be shown as a component of comprehensive income in that financial statement. According to SFAS 130,three alternative formats are allowed for presenting OCI and total comprehensive income: 1. Below the line for net income in a traditional income statement (as a combined statement of net income and comprehensive income); 2. In a separate statement of comprehensive income that begins with the amount of net income for the year; or 3. In a statement of changes in stockholders equity. Under SFAS 130, FASB encourages reporting entities to display the components of OCI and total comprehensive income using the first or second format above. Cumulative total OCI for the period should be presented on the balance sheet as a component of stockholders equity, separate from additional paid-in capital and retained earnings.