Comprehensive Income: Study with Video Lessons, Practice Problems & Examples

Comprehensive income encompasses net income plus additional items that are not included in the income statement, such as unrealized gains and losses on available-for-sale securities and foreign currency translation adjustments. It serves as a broader measure of a company's financial performance, capturing more abstract accounting issues. While net income is reported on the income statement, comprehensive income includes these unusual items, effectively acting as a "catch-all" for complex accounting elements.

Comprehensive Income

Alright, I just wanted to include a short discussion of comprehensive income. Let's check it out real quick. So in general, comprehensive income is going to be beyond the scope of this class. This is something that you'll learn in maybe your 3rd or 4th accounting class and I just want to give you a high level because a lot of books like to mention it at this point. So comprehensive income, it's going to be your net income plus stuff. I'm going to say just stuff because comprehensive income is kind of where the weird things in accounting, things that we'll definitely not talk about in this course. They go to comprehensive income, okay? So it's weird things like this: unrealized gains and losses on available for sale securities, foreign currency translation adjustments, and other even more complicated issues. Aren't you glad that we don't have to go through those topics right now? That's all I just want you to know, and I just wanted to show you what this looks like. So comprehensive income does not affect net income, okay? Remember, we have our net income that's what's shown on the income statement and then we could show comprehensive income by starting with our net income like we do in our example here. We start with net income, net sales, right? Cost of goods sold. It's basically your income statement from here to here. This is all the income statement, right? That's all your income statement getting to net income. And then it shows the other weird things. It shows our foreign currency translation, it shows the fair values of derivatives, right? The weird things are showing up down there. It's almost like the other comprehensive income this section is like the trash can of accounting, it's like oh this is a weird thing just shove it in comprehensive income, okay? So just so you know, comprehensive income, it's like net income but it includes even more abstract issues as well. Cool? So that's about it. We don't need to dive into any details, just know the idea of comprehensive income there. Next video.

Here’s what students ask on this topic:

What is comprehensive income in financial accounting?

Comprehensive income in financial accounting is a measure that includes net income plus other items that are not part of the income statement. These items can include unrealized gains and losses on available-for-sale securities, foreign currency translation adjustments, and other complex accounting elements. Comprehensive income provides a broader view of a company's financial performance by capturing these additional, often abstract, accounting issues. While net income is reported on the income statement, comprehensive income is shown separately to include these unusual items.

How is comprehensive income different from net income?

Comprehensive income differs from net income in that it includes additional items not reported on the income statement. Net income is the total profit or loss of a company after all revenues and expenses have been accounted for, and it is shown on the income statement. Comprehensive income, on the other hand, includes net income plus other items such as unrealized gains and losses on available-for-sale securities and foreign currency translation adjustments. These additional items are often more abstract and complex, providing a fuller picture of a company's financial performance.

What are some examples of items included in comprehensive income?

Examples of items included in comprehensive income are unrealized gains and losses on available-for-sale securities, foreign currency translation adjustments, and changes in the fair value of derivatives. These items are not included in net income but are part of comprehensive income to provide a more complete view of a company's financial performance. These items are often complex and abstract, capturing financial elements that do not directly affect the company's day-to-day operations but still impact its overall financial health.

Why is comprehensive income important in financial reporting?

Comprehensive income is important in financial reporting because it provides a more complete picture of a company's financial performance. While net income shows the company's profitability from its core operations, comprehensive income includes additional items that can affect the company's financial health. These items, such as unrealized gains and losses on available-for-sale securities and foreign currency translation adjustments, offer insights into potential future gains or losses and other financial risks. By including these elements, comprehensive income helps stakeholders make more informed decisions.

How is comprehensive income reported in financial statements?

Comprehensive income is reported in financial statements separately from net income. It is typically shown in a statement of comprehensive income, which starts with net income and then adds the additional items that make up comprehensive income. These items can include unrealized gains and losses on available-for-sale securities, foreign currency translation adjustments, and changes in the fair value of derivatives. This separate reporting helps to clearly distinguish between the company's core operational performance and other complex financial elements.