What Is Comprehensive Income? Net Income, OCI, and Examples
Comprehensive income is the change in a company’s equity during a period from all nonowner sources. It captures the period’s revenues, expenses, gains, and losses, but not owner transactions like issuing stock or paying dividends. The formula is simple: comprehensive income equals net income plus other comprehensive income (OCI).
OCI is a short list of items, such as foreign currency translation adjustments and unrealized gains or losses on available-for-sale debt securities, that accounting standards keep out of net income and record in a separate part of equity. This guide explains the main OCI items, when reclassification applies, and how to prepare the statement using worked examples.
Prefer to watch? Jump to the worked video example, where Professor Farhat builds a statement of comprehensive income step by step.
Comprehensive Income Definition and Formula
Comprehensive income is one of the elements of financial statements. Under U.S. GAAP, the FASB defines it as the change in a business’s equity during a period from transactions and other events from nonowner sources. It includes current-period net income and OCI and excludes owner investments and distributions. Retrospective adjustments, such as corrections of prior-period errors and the cumulative effect of certain accounting changes, adjust opening equity rather than current-period comprehensive income.
The statement of comprehensive income is the report that shows this number. Here is the formula:
Net income + Other comprehensive income (OCI) = Comprehensive income
At year-end, net income closes to retained earnings. OCI closes to a different equity account called accumulated other comprehensive income (AOCI), which appears as its own line in stockholders’ equity on the balance sheet.
Net Income vs. Other Comprehensive Income
The Statement of Comprehensive Income is split into two parts:
- Net Income: This section is the traditional income statement. It includes the revenues, expenses, gains, and losses that accounting standards require a company to recognize in earnings for the period. Careful here: “recognized” does not mean “realized.” Net income already includes some unrealized amounts, such as fair value changes on trading debt securities and on equity securities with readily determinable fair values.
- Other Comprehensive Income (OCI): This section reports a specific list of gains and losses that accounting standards require to bypass net income and go to a separate part of equity, accumulated other comprehensive income (AOCI). An item lands in OCI because a standard says so, not just because it is unrealized. IFRS splits OCI into items that may be reclassified to profit or loss later and items that never will be. That split comes from IAS 1, and IFRS 18, which replaces IAS 1 for annual periods beginning on or after January 1, 2027, keeps it. U.S. GAAP (ASC 220) does not require the same two-category presentation; reclassification follows the guidance for each underlying item.
OCI items can swing a lot from year to year, which is one reason they get their own section. The next section lists the main items and shows where U.S. GAAP and IFRS differ.
Components of OCI
The table below shows the main OCI items, which framework allows each one, and whether the item later moves into net income. That later move is called reclassification, or “recycling.” Under U.S. GAAP, the full list of OCI items is in ASC 220-10-45-10A. For IFRS presentation rules, see the IFRS Foundation’s page on IFRS 18.
| OCI item | U.S. GAAP | IFRS | Later reclassified to net income? |
|---|---|---|---|
| Foreign currency translation adjustments (gains or losses from translating a foreign subsidiary’s statements into the parent’s currency) | Yes | Yes | Yes, when the foreign operation is sold or substantially liquidated |
| Unrealized holding gains and losses on available-for-sale debt securities (IFRS: debt instruments at fair value through OCI) | Yes | Yes | Yes, when the security is sold |
| Gains and losses on cash flow hedges (derivatives that protect against changes in future cash flows) | Yes | Yes | Yes, generally when the hedged cash flows affect earnings |
| Gains and losses on hedges of a net investment in a foreign operation | Yes | Yes | Yes, when the foreign operation is sold or substantially liquidated |
| Defined benefit pension and other postretirement amounts | Gains and losses and prior service cost or credit not immediately recognized in benefit cost are recorded in OCI. | Remeasurements are recorded in OCI. Past service cost is recognized in profit or loss. | U.S. GAAP: amounts in AOCI may enter benefit cost through applicable amortization or settlement rules; not every gain or loss must be amortized immediately. IFRS: remeasurements are never reclassified to profit or loss. |
| Change in a liability’s fair value caused by the company’s own credit risk, when the fair value option is elected | Yes | Yes | U.S. GAAP: yes, when the liability is settled or otherwise removed from the books. IFRS: never |
| Revaluation surplus on property, plant, and equipment or intangible assets | Not allowed | Yes | Never (it can be moved straight to retained earnings) |
| Fair value changes on equity investments the company elects to measure at fair value through OCI | Not allowed | Yes | Never, even when the shares are sold |
Three Rules Students Often Miss
- Equity securities are no longer available-for-sale under U.S. GAAP. Since ASU 2016-01 (effective in 2018 for public companies), fair value changes on equity securities with readily determinable fair values go to net income. Only debt securities can be classified as available-for-sale.
- Credit losses on available-for-sale debt securities go to net income. Under ASC 326-30, the credit-related part of a decline in fair value is recorded in net income through an allowance. Only the non-credit part of the decline stays in OCI.
- IAS 16 revaluation decreases usually hit profit or loss. A revaluation increase goes to OCI, unless it reverses an earlier decrease on the same asset that was recognized in profit or loss. A decrease goes to profit or loss, except to the extent it reverses an existing revaluation surplus for that same asset, which is charged to OCI.
Why Does Comprehensive Income Matter?
Net income can look steady while equity takes a hit that only shows up in OCI. Here is a common case. When interest rates rise, the fair value of fixed-rate bonds falls. If a company classifies those bonds as available-for-sale, a decline attributable solely to interest-rate changes generally goes to OCI. Credit losses are recognized separately in net income. A reader who only checks the income statement would miss it.
That is why analysts look at both numbers. Net income shows performance reported in earnings. Comprehensive income shows the full change in equity from nonowner sources, including OCI items like currency swings and pension gains and losses.
Continuing and Discontinued Operations
- Continuing Operations: These include all income-statement items other than qualifying discontinued operations, including nonoperating gains, losses, interest, and income taxes.
- Discontinued Operations: Not every sale of a business unit qualifies. Under U.S. GAAP (ASC 205-20), a component that has been disposed of or is held for sale is reported as a discontinued operation only if the disposal represents a strategic shift that has, or will have, a major effect on the company’s operations and financial results, such as exiting a major line of business or a major geographic area. IFRS 5 uses a similar idea: a separate major line of business or geographic area of operations. Results are shown net of tax, below income from continuing operations.
Important: both continuing and discontinued operations are part of net income. Discontinued operations never go to OCI.
Reclassification Adjustments
A reclassification adjustment moves a gain or loss out of OCI in the period it is recognized in net income. Without it, the same gain would be counted twice in comprehensive income: once in OCI while it was unrealized, and again in net income when it is realized.
Here is a simple example. Assume a 25% tax rate.
Year 1: XYZ Corporation buys an available-for-sale debt security for $50,000. At year-end, its fair value is $60,000. XYZ reports a $10,000 unrealized holding gain in OCI, which is $7,500 after $2,500 of tax.
Year 2: XYZ sells the security for $60,000. The $10,000 realized gain is now included in net income ($7,500 after tax). In the same year, XYZ reports a reclassification adjustment of ($10,000) in OCI, which is ($7,500) after tax.
| Year 1 | Year 2 | Total | |
|---|---|---|---|
| Gain in net income (after tax) | $0 | $7,500 | $7,500 |
| Gain in OCI (after tax) | $7,500 | ($7,500) | $0 |
| Effect on comprehensive income | $7,500 | $0 | $7,500 |
The gain ends up in comprehensive income once, $7,500 after tax. Without the reclassification adjustment, it would have been counted twice, for $15,000.
Here are the journal entries. Tax is ignored so you can focus on OCI.
Year 1, adjust the security to fair value:
Dr Fair Value Adjustment, Available-for-Sale 10,000
Cr Unrealized Holding Gain or Loss, OCI 10,000
Year 2, record the sale:
Dr Cash 60,000
Cr Debt Investments 50,000
Cr Gain on Sale of Investments (net income) 10,000
Year 2, record the reclassification adjustment:
Dr Unrealized Holding Gain or Loss, OCI 10,000
Cr Fair Value Adjustment, Available-for-Sale 10,000
How Is Comprehensive Income Presented?
The Statement of Comprehensive Income can be presented in one of two ways:
- Single Statement Approach: One continuous statement. It starts with revenues, works down to net income as a subtotal, then lists each OCI item, and ends with total comprehensive income.
- Two-Statement Approach: Two separate but consecutive statements. The income statement ends with net income. The statement of comprehensive income comes right after it, starts with net income, adds or subtracts each OCI item, and ends with total comprehensive income.
Under U.S. GAAP (ASC 220), these are the only two choices. ASU 2011-05 removed the old option of showing OCI in the statement of changes in equity. IFRS gives the same two choices. In consolidated statements, comprehensive income is also split between the parent’s owners and the noncontrolling interest.
Video Example: Preparing a Statement of Comprehensive Income
In this selected segment (3:03–8:28), Professor Farhat prepares a statement of comprehensive income, calculates net income, and incorporates other comprehensive income net of tax. Watch the worked example before reviewing the illustrations below.
Comprehensive Income Examples
To illustrate, here is the same fictitious company presented both ways. Total expenses include income tax expense, and each OCI item is shown net of tax. Companies can also show OCI items before tax with one combined tax line.
Single-Statement Format
| Description | Amount |
|---|---|
| Total revenue | $600,000 |
| Total expenses, including income tax expense | (450,000) |
| Net income | $150,000 |
| Unrealized holding gain on available-for-sale debt securities, net of tax | $10,000 |
| Foreign currency translation adjustment, net of tax | (2,000) |
| Total other comprehensive income | $8,000 |
| Total comprehensive income | $158,000 |
Two-Statement Format
| Description | Amount |
|---|---|
| Total revenue | $600,000 |
| Total expenses, including income tax expense | (450,000) |
| Net income | $150,000 |
| Description | Amount |
|---|---|
| Net income | $150,000 |
| Unrealized holding gain on available-for-sale debt securities, net of tax | $10,000 |
| Foreign currency translation adjustment, net of tax | (2,000) |
| Total other comprehensive income | $8,000 |
| Total comprehensive income | $158,000 |
Exam Traps and Common Student Mistakes
Comprehensive income is tested in the FAR section of the CPA Exam. The FAR blueprint asks candidates to recall the purpose and structure of the statement of comprehensive income and to identify items classified as OCI. Watch out for these common mistakes:
- Thinking OCI means “all unrealized gains and losses.” Unrealized gains on trading debt securities and on equity securities go to net income. OCI is a specific list.
- Putting discontinued operations or error corrections in OCI. Discontinued operations are part of net income. Corrections of prior-period errors adjust beginning retained earnings (see our guide to accounting changes and error corrections under ASC 250), so they never pass through comprehensive income for the current period.
- Mixing up two different “single vs. multiple” ideas. One-statement vs. two-statement is about where OCI is shown. Single-step vs. multiple-step is about how the income statement groups revenues and expenses, such as whether it shows gross profit and operating income. They are separate choices.
- Treating pension items the same under both frameworks. Under U.S. GAAP, amounts not immediately recognized in benefit cost enter OCI and may later be recognized under the applicable amortization or settlement rules. Under IFRS, remeasurements enter OCI without subsequent recycling, while past service cost enters profit or loss.
- Forgetting where OCI goes on the balance sheet. It accumulates in AOCI, not in retained earnings.
Quick check: Which item is reported in other comprehensive income under U.S. GAAP?
A. Unrealized gain on trading debt securities
B. Unrealized gain on equity securities with a readily determinable fair value
C. Foreign currency translation adjustment
D. Loss from discontinued operations
Answer: C. Choices A and B are reported in net income. Choice D is reported in net income too, net of tax, below income from continuing operations.
Key Takeaways
- Comprehensive income = net income + other comprehensive income (OCI).
- OCI is a specific list of items set by the standards, not every unrealized gain or loss.
- Net income closes to retained earnings. OCI closes to accumulated other comprehensive income (AOCI) in stockholders’ equity.
- A reclassification adjustment removes an item from OCI when it is recognized in net income, so it is counted only once.
- U.S. GAAP and IFRS differ: revaluation surplus and the equity fair-value-through-OCI election exist only under IFRS, and defined benefit remeasurements are never recycled under IFRS; U.S. GAAP applies its own amortization and settlement rules.
- Comprehensive income is presented in one continuous statement or in two separate but consecutive statements.
Want a deeper walkthrough of comprehensive income? Explore our Intermediate Accounting course, or start with Financial Accounting Principles if you are newer to the basics.
Frequently Asked Questions About Comprehensive Income
What is comprehensive income?
Comprehensive income is the change in a company’s equity during a period from all nonowner sources. It equals net income plus other comprehensive income (OCI) and leaves out owner transactions, such as issuing stock and paying dividends.
What is the formula for comprehensive income?
Comprehensive income = Net income + Other comprehensive income. For example, if net income is $150,000 and OCI is $8,000, comprehensive income is $158,000.
How is comprehensive income different from net income?
Net income includes the revenues, expenses, gains, and losses that standards require in earnings, including some unrealized amounts, such as fair value changes on equity securities. Comprehensive income adds the OCI items, such as foreign currency translation adjustments and unrealized gains or losses on available-for-sale debt securities, that standards keep out of net income.
What items are included in other comprehensive income?
Under both U.S. GAAP and IFRS, OCI includes foreign currency translation adjustments, unrealized gains and losses on available-for-sale debt securities (debt instruments at fair value through OCI under IFRS), cash flow hedges, net investment hedges, certain pension and postretirement amounts, and changes in a liability’s fair value caused by the company’s own credit risk when the fair value option is elected. IFRS also allows revaluation surplus and fair value changes on equity investments elected at fair value through OCI.
Can OCI items affect net income later?
Yes, many can. When an available-for-sale debt security is sold, for example, its gain or loss moves out of OCI and into net income through a reclassification adjustment. Under IFRS, some items, such as revaluation surplus and pension remeasurements, are never reclassified to profit or loss.
Where does OCI show up on the balance sheet?
Each period’s OCI closes to accumulated other comprehensive income (AOCI), a separate component of stockholders’ equity. Net income, by contrast, closes to retained earnings. Under IFRS, these amounts are held in equity reserves, such as the revaluation surplus.
Are OCI items reported net of tax?
Under U.S. GAAP (ASC 220), a company can show each OCI item net of its related tax effect, or show the items before tax with one combined amount for the tax effect. Either way, the tax allocated to each OCI component must be shown on the face of the statement or in the notes.
How is comprehensive income presented?
Companies use either one continuous statement, which runs from revenues down to net income, then lists OCI items and ends with total comprehensive income, or two separate but consecutive statements: an income statement, followed by a statement of comprehensive income that starts with net income. U.S. GAAP (ASC 220) and IFRS allow the same two choices.
Do all companies have to report comprehensive income?
Under U.S. GAAP, a business with any OCI items must report comprehensive income, but a business with no OCI items in any period presented is not required to. Not-for-profit organizations follow ASC 958 and present a statement of activities instead. Under IFRS, a complete set of financial statements always includes a statement presenting comprehensive income.
Why do reclassification adjustments matter?
They keep the same gain or loss from being counted twice in comprehensive income. An item that went through OCI in an earlier period is removed from OCI in the period it reaches net income, so over the asset’s life it is counted only once.
About the Author
Mansour Farhat, CPA, CIA, DBA, teaches accounting and CPA exam topics at Farhat Lectures through written guides and video lessons like the one on this page.
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