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The Statement of Comprehensive Income is a financial statement for items that are not included within Net Income from the Income Statement but nevertheless do affect the equity section of the Balance Sheet. The Statement of Comprehensive Income shows total comprehensive income. The Statement of Comprehensive Income includes everything that affects equity except for transactions with shareholders like dividends.
The Statement of Comprehensive Income basically looks like this:
| Statement of Comprehensive Income | |
|---|---|
| For the Year Ended Dec 31, XXXX | |
| Net Income | XXX |
| Other Comprehensive Income | |
| Foreign Currency Translation Gain/Loss | XXX |
| Pension Adjustments | XXX |
| Unrealized Gain/Loss on Available-for-Sale Debt Securities | XXX |
| Gains/Losses on Derivatives designated as Cash Flow Hedges | XXX |
| Comprehensive Income | XXX |
Foreign Currency Translation Gains or Losses, Pension-Related Adjustments, Unrealized Gains or Losses on Available-for-Sale Securities, and Gains or Losses on Cash Flow Hedges are the components of the Statement of Comprehensive Income.
Foreign Currency Translation Gains and Losses happen whenever a business translates the financial statements of its foreign subsidiaries into its reporting currency. Obviously, this is irrelevant for almost all small businesses.
These gains or losses are due to changes in the exchange rates between the subsidiary’s foreign currency and the parent company’s reporting currency. These gains or losses are reported here in Other Comprehensive Income (OCI), because these are so-called paper gains or losses. They are not realized gains or losses until that business subsidiary is sold off.
Pension Adjustments relate to a company’s pension plan and include pension-related items like Net Prior Service Cost, Excess over Expected Gain or Loss, and Net Transition Asset or Obligation. These stay inside of OCI, because they are so volatile. They are periodically amortized to the Income Statement as a part of the net periodic benefit cost.
Unrealized Gains and Losses on Available-for-Sale Debt Securities occur from fluctuations in the fair value market price of these investments. These live here in OCI, because they are unrealized. The Income Statement reflects only realized gains and losses. Once these investments are sold, their accumulated gains or losses will be reclassified from OCI to Net Income.
Gains and losses on derivative instruments that are designated as cash flow hedges are due to changes in the fair value of derivatives that are being used to hedge exposure to variability in cash flows like commodity price risk or interest rate risk. Note that these are not speculative investments. For example, a manufacturer might have a hedge against the rising price of the metal nickel.
Reclassification Adjustments are used to transfer specific gains and losses from Accumulated Other Comprehensive Income (AOCI) to Retained Earnings when those specific gains and losses are realized. Reclassification Adjustments must be reported within OCI on the Statement of Comprehensive Income.
Other Comprehensive Income (OCI) can be presented either in a single combined Statement of Income and Comprehensive Income or in two separate but consecutive financial statements, the Income Statement and the Statement of Comprehensive Income.
The Combined Statement of Income and Comprehensive Income begins with the Income Statement items and concludes with the OCI items. It looks like this:
| Income Statement & Statement of Comprehensive Income | |
|---|---|
| For the Year Ended Dec 31, XXXX | |
| Net Revenues | XXX |
| Less: Cost of Goods Sold | (XXX) |
| Gross Profit | XXX |
| Less: Operating Expenses | (XXX) |
| Operating Profit | XXX |
| Add: Non-Operating Gains & Revenues | XXX |
| Less: Non-Operating Losses & Expenses | (XXX) |
| Income (Loss) from Continuing Operations, Gross of Taxes | XXX |
| Less: Taxes (Current Taxes + Deferred Taxes) | (XXX) |
| Income (Loss) from Continuing Operations, Net of Taxes | XXX |
| Income (Loss) from Discontinued Operations, Net of Taxes | XXX |
| Net Income | XXX |
| Other Comprehensive Income | |
| Foreign Currency Translation Gain/Loss | XXX |
| Pension Adjustments | XXX |
| Unrealized Gain/Loss on Available-for-Sale Debt Securities | XXX |
| Gains/Losses on Derivatives designated as Cash Flow Hedges | XXX |
| Comprehensive Income | XXX |
This approach separates the two documents into a Statement of Income and a Statement of Comprehensive Income
| Income Statement | |
|---|---|
| For the Year Ended Dec 31, XXXX | |
| Net Revenues | XXX |
| Less: Cost of Goods Sold | (XXX) |
| Gross Profit | XXX |
| Less: Operating Expenses | (XXX) |
| Operating Profit | XXX |
| Add: Non-Operating Gains & Revenues | XXX |
| Less: Non-Operating Losses & Expenses | (XXX) |
| Income (Loss) from Continuing Operations, Gross of Taxes | XXX |
| Less: Taxes (Current Taxes + Deferred Taxes) | (XXX) |
| Income (Loss) from Continuing Operations, Net of Taxes | XXX |
| Income (Loss) from Discontinued Operations, Net of Taxes | XXX |
| Net Income | XXX |
| Statement of Comprehensive Income | |
|---|---|
| For the Year Ended Dec 31, XXXX | |
| Net Income | XXX |
| Other Comprehensive Income | XXX |
| Foreign Currency Translation Gain/Loss | XXX |
| Pension Adjustments | XXX |
| Unrealized Gain/Loss on Available-for-Sale Debt Securities | XXX |
| Gains/Losses on Derivatives designated as Cash Flow Hedges | XXX |
| Comprehensive Income | XXX |
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Hi there! I'm Matt. I'm a Christian, husband and father of four. I'm a graduate of Calvin, Harvard, Cardiff and Johns Hopkins Universities. I have a PhD in Economics, an MBA in Finance and an MS in Data Analytics. I'm a numbers guy who can communicate well!
I began this service to work directly with the small and mid-sized business owners who grow our great country's economy. Since 1999, I've worked with owners across industries from high tech IT and robotics to small farmers and artists. I've also helped and advised nonprofits from churches to civic organizations.
I also served as a Finance Staff Officer and eventually as the National Division Chief for Measurement Research within the US Coast Guard. The research and methods I created there continue to guide strategic decisions to this day.
I enjoy being active outdoors, especially in wild lands. Hiking, biking and fly fishing are some of my favorite pastimes.
I also love dogs! I'm an AKC obedience evaluator, and I train service and therapy dogs.
Operating Expenses Disguised as Inventory
Companies need to keep some amount of inventory. When I go to a home repair supplier, I expect them to have the copper pipe I need in stock. When I go to my local bakery, I expect them to have the macarons I crave in stock. When I go to my local grocer, I expect […]
Big companies are incentivized to increase product specialization and complexity. Why?
Our culture values specialization. Having specialized skills often leads to outsized material benefits. It also often results in praise and social status. Consider the social recognition that would be given to a medical doctor who is a primary care family medicine doctor compared to that given to an orthopedic surgeon. They are both highly educated, […]
Transaction Costs in the American Economy from 1870 to 1970
What Are Transaction Costs? Transaction costs are often overlooked in economics and textbook finance. In real life economics, however, they play a very significant role. In corporate finance, you can see many of a company’s transaction costs located in the selling and administrative categories within the Selling, General and Administrative (SG&A) section of their Income […]
During the Great Depression, British economist Ronald Coase wrote a famous essay on the nature of the firm or company. As with America at the time, many free-market economies were also enduring a severe and difficult economic depression. The Soviet Union, however, was growing to become a significant industrial economy. This led to a debate […]
Transaction Costs and SG&A Expenses
Selling, General or Administrative Expenses One way to see how economic transaction costs are internalized within a company is in the SG&A Expense lines of a company’s income statement. All of the selling and administrative expenses are internalized transaction costs, and so is the insurance expense within the general expenses category. This is not the […]
What Is the Balance Sheet? The Balance Sheet is one of the primary financial statements used in accounting. The Balance Sheet shows a snapshot of a business’s financial position at a point in time. There are two sections: Assets and Liabilities & Equity. Not only does the Balance Sheet show individual and composite account balances, […]
Statement of Comprehensive Income
What Is the Statement of Comprehensive Income? The Statement of Comprehensive Income is a financial statement for items that are not included within Net Income from the Income Statement but nevertheless do affect the equity section of the Balance Sheet. The Statement of Comprehensive Income shows total comprehensive income. The Statement of Comprehensive Income includes […]
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