What It Means, With Examples

What Is Other Comprehensive Income?

In corporate financial reporting and business accounting, other comprehensive income (OCI) includes revenues, expenses, gains, and losses that have yet to be realized and are excluded from net income on an income statement. OCI represents the balance between net income and comprehensive income.

A common example of OCI is a portfolio of bonds that have not yet matured and, consequently, haven’t been redeemed. Gains or losses from the changing value of the bonds cannot be fully determined until the time of their sale; the interim adjustments are thus recognized in other comprehensive income.

Understanding Other Comprehensive Income

Corporate income can be broken down in a multitude of ways, which can mislead interested parties. To compensate for this, the Financial Accounting Standards Board (FASB) requires companies to use universal measurements to help provide investors and analysts with clear, easily accessible information on a company’s financial standing.

The Statement of Financial Accounting Standards No. 220, published by the FASB and entitled “Income Statement–Reporting Comprehensive Income,” reads that an entity shall report comprehensive income in a single continuous financial statement or in two separate but consecutive financial statements. It must also present its components in two sections: net income and other comprehensive income.

Accumulated other comprehensive income or loss is the accumulation of unrealized gains and losses attributed to line items listed on the income statement in other comprehensive income over time. For example, if Company XYZ had $1.5 million in other comprehensive income in the first quarter and $1.2 million in the second, it would have $2.7 million in accumulated other comprehensive income listed on its second quarter balance sheet in the shareholders’ equity section.

Common Examples of Other Comprehensive Income

Any held investment classified as available for sale, which is not intended to be held until maturity, and isn’t a loan or a receivable, may be recognized as other comprehensive income.

Other examples of OCI include:

• The previously mentioned bond portfolio is included as long as the business does not classify the bonds as held-to-maturity. Any change in the value of the available-for-sale asset may be included.
• Foreign currency transactions can create gains or losses if the balance of a company’s currency holdings fluctuates, which they frequently do. But the only companies that truly need to pay attention to foreign currency-derived other comprehensive income are large firms that deal in many different currencies.
• Pension plans can also create other comprehensive income. If the value of the plan increases, the difference between the old and new values can be recognized as comprehensive, minus any distributions to pension recipients.
• Gains and losses on derivatives instruments that are designated as, and qualify as, cash flow hedges.

The Bottom Line

Other comprehensive income is an income statement line item that includes unrecognized gains and losses from a business’s financial activities. They include foreign currency translation adjustments, gains and losses associated with pension plans, gains or losses on derivatives designated as cash flow hedges, and more.

Classifying unrecognized gains and losses as other comprehensive income and subtracting them from net income helps a company demonstrate its financial position with transparency.