Monday, December 14, 2009

Comprehensive Income

Hello Dear Reader

I hope you enjoyed my last post on Basics of Accounting. For me, self study mode has always worked. However, while preparing for the CPA exam, I realized some topics needed deeper research and time constraint was the biggest challenge. At that point in time, I wished, if there was a "ready to eat" affordable package available. My endeavor is to help other CPA candidates who are in the same boat as I was.

Today's topic of discussion is Comprehensive Income and I chose this first because it is bound to be repeated over and over and is a good idea to start with.

Authoritative Pronouncement

With the introduction of new FASB Accounting Standards Codification, it is now cited as Codification Topic 220, Comprehensive Income (formerly known as FASB Statement 130).

Note that this Codification is not applicable to Not for Profit Organizations.


Simply stated, Comprehensive Income is a summation of Net income and Other Comprehensive Income “OCI”. It is “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.”
OCI includes items that must bypass the income statement because they have not been realized, and 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.

Components of OCI

 Unrealized holding gains and losses on available for sale securities;

 Effective portion of gain or loss on derivative instruments (cash-flow hedge);

 Foreign currency translation adjustments; and

 Minimum pension liability adjustments.

Presentation and Disclosure

Comprehensive Income can be presented in any of the following three ways:

Single Statement Approach, wherein items of OCI are added to Net Income and is termed as the Statement of Income and Comprehensive Income;                             

 A stand-alone Statement of Comprehensive Income describing the items in OCI; or

 In a Statement of Changes in Stock-holders equity.

Note: - The components of OCI may be shown net of tax. However, if the items are shown gross of tax, tax effects related to all components has to be reported on a single, separate line. Further, using gross approach necessitates disclosure of tax effects of each component in the Notes to Financial Statements.


Reclassification adjustments, usually triggered through a sale, must be kept in mind to avoid double counting - once in net income in the current year and also in OCI in the earlier period. For e.g., the sale of an available-for-sale security in the current period will prompt an adjustment for the gains/losses that were included in OCI previously.

Points to Ponder

 Understand components of OCI in more detail which I will attempt to cover subsequently.
 Remember to avoid double count. Only minimum pension liabilities will not require reclassification adjustments because they will not be reported in net income in any future period.
 The tax effects of items reported in OCI must also be included in OCI.
 Statement of changes in equity must display accumulated balance of OCI separately.

I hope you will continue to remain with me and share the little I have.

With Warm Regards



  1. A couple of questions. What is the difference between CPA and Chartered Accountant skills with respect to practicing accounting (as relates to your work)? Also, what is the FAR subject progression you plan to follow? Is there an order to what you'll be presenting that you have in mind? And finally, is there a particular source of this information that you found particularly useful when you were learning this subject? I dig the blog.

  2. Hi There

    Thanks for reading and following my blog.

    Now replying to your questions:-

    - I did my Chartered Accountancy from Institute of Chartered Accountants of India which is CPA equivalent. A Chartered Accountant has the similar role as that of a CPA in public accounting/auditing, taxation, internal audit, Corporate Accounting etc.

    - At this point in time I intend to cover smaller topics that make up a big chunk from exam stand point. As I continue to write, I will draft a concrete strategy. If you have any suggestions, please chip in.

    - From the exam view point mostly I prepared using Bisk software and Wiley Book. However, I use different sources for making my own notes keeping them simple and stupid!!

    Keep digging:)

  3. Thanks for your response. I would love to see that strategy simply because I want to see what a person who has already taken the exam thinks the important stuff is, the skeleton of it, and their way of blocking (arranging) it in their head.

    I like the blog and will keep liking it.



  4. I love internet marketing.

    Do you know why? It’s because I can decide to work less and double my income without doing anything illegal. How true?

    If you’re like me, your utmost desire this year is to earn full time income online. I must commend you for that. Because many people do not have that kind of goal.

    They’re scared of imagining. They’re too careful to take risks or make mistakes. They forget that failing is an integral part of succeeding in any endeavor.

    Talking about making money online, one important step to take is to act as though you’re not in for the money. Truth be told, money is a vital component of living and without it, it’d seem as if you’re a nuisance to the society where you belong.

    But when you want to truly make a lot of money on the internet, learn to take your mind off that “paper” or “check” that looks so good. Really, it does look good.

    Instead, focus you energy on opportunities. In fact, I just read from a reliable blog the ONLY difference between the rich and the poor. Can I tell you?

    All right, “the poor blindly wants to make more money, while the rich are seriosly looking for opportunities to reach more people.” Did you see that?
    A 12-month income plan for you

    double income
    tripple income