Comprehensive income is a broad view of net income that takes into account special items that are traditionally excluded from formal net income. Comprehensive income is the sum of net income (or loss) and other comprehensive income. Other comprehensive income includes special items not part of net income, such as:
- Unrealized gains/losses on certain types of investments and financial instruments
- Unrealized gains/losses on post-retirement benefit plans
- Foreign currency translation adjustments
- Gains/losses from derivative instruments
Under GAAP other comprehensive income is excluded from net income, so it is reported as a separate item on the income statement. Comprehensive income is calculated by adding to a company's net income in the event of gains and by subtracting from a company's net income in the event of losses.
Calculating Comprehensive Income
| Net Income | $1,540,000 |
| Other Comprehensive Income | $5,320 |
| Comprehensive Income | $1,545,320 |
Under the Financial Accounting Standards Board (FASB) guidelines, comprehensive income may be reported in one of two ways:
1. Using a separate statement of comprehensive income
2. Adding other comprehensive income to the company's income statement after net income
The purpose of reporting other comprehensive income is to disclose more fully the financial status of an operating entity to investors, lenders, and government regulators. For example, gains or losses resulting from foreign currency translation may show how well a company is managing its foreign exchange risk throughout its global business. Accumulated other comprehensive income, or the total comprehensive income over time, is a balance sheet item reported as a unique line item in the stockholders' equity section.