statement of comprehensive income

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    Mohamed Adel
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    Please i can’t understand the concept of the statement of comprehensive income definition

    “Comprehensive income includes all transactions of the company except for transactions made with the owners of the
    company (such as distribution of dividends or the sale or repurchase of shares). ”

    and the other Comprehensive Items that inculde 

    Foreign currency translation adjustments \Gains and losses on foreign currency and the other items

     

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    Lynn Roden
    HOCK international

    Hello Mohamed Adel,

    The reference to “all transactions of the company except for transactions made with the owners of the company” means that comprehensive income includes everything on the income statement (net income) plus the amount of change in the accumulated other comprehensive income account over the same period as the period covered by the income statement. “Transactions with the owners of the company” means transactions that relate to shares of the company’s stock, such as the sale of shares of stock, repurchase of shares of stock, and distribution of dividends. Those transactions would never be considered income or expense items, anyway. So they are also not considered comprehensive income items.

    Comprehensive income is more inclusive than net income. Net income is a part of comprehensive income, but it is not all of comprehensive income. Comprehensive income includes everything on the income statement plus some specific items that do not appear on the income statement that are called “other comprehensive income.” One of those specific items is foreign currency translation adjustments. You will find the full list of those other comprehensive income items on pages 18 and 19 of your HOCK CMA Part 1, Volume 1 textbook. Those things would be income statement items, except they are not reported on the income statement.  They are not recorded by debiting or crediting them to an income statement account. Instead, they are debited or credited to accumulated other comprehensive income on the balance sheet.

    Net income flows to retained earnings in equity when the year-end close is performed, so net income ends up in equity. However, those specific items that are not included on the income statement go straight to equity by means of the accumulated other comprehensive income account. Accumulated other comprehensive income is a balance sheet account in the equity section of the balance sheet, and it includes those items that are not reflected on the income statement.

    Net income is one part of comprehensive income. The other part of comprehensive income is the amount of change in the accumulated other comprehensive income account on the balance sheet.

    The word “other” in “accumulated other comprehensive income” refers to the specific items that are other than income statement transactions and that flow to equity by means of the accumulated other comprehensive income account. Even though those items are not on the income statement, those items (along with net income) are also comprehensive income. Those items are called other comprehensive income items because they are reported not in net income (and remember, net income is a part of comprehensive income) but directly in equity. They are “other” comprehensive income.

    Of those specific items, the ones that would increase net income if they were reported on the income statement are credited to accumulated other comprehensive income, and the ones that would decrease net income if they were reported on the income statement are debited to accumulated other comprehensive income.

    The word “accumulated” in “accumulated other comprehensive income” means that the balance in the account keeps accumulating. Since accumulated other comprehensive income is a balance sheet account, it is a permanent account. It is never closed out, and the balance in it keeps accumulating just like any other balance sheet account. The accumulated other comprehensive income balance in the account is sometimes referred to as AOCI.

    The amount of change in the AOCI account from the beginning of the year to the end of the year is the net amount of other comprehensive income items that were recorded during the year. The amount of change in the AOCI account during a period is called simply “other comprehensive income,” or OCI.

    “Total comprehensive income” or just “comprehensive income” for a year includes net income for the year plus other comprehensive income for the year (the net of the other comprehensive income items that were reported in AOCI during the year).

    To summarize:

    • Accumulated other comprehensive income (AOCI) is the name of the balance sheet account in the equity section of the balance sheet where certain items that are not reported in net income are recorded. The balance in the AOCI account accumulates and is never closed out because it is a permanent account.
    • Other comprehensive income (OCI) is the amount of change in the accumulated other comprehensive income account during a period. Other comprehensive income is also the net of all the debit and credit transactions in the AOCI account during the period. When the income statement covers a one-year period, other comprehensive income for the year is the amount of change in the accumulated other comprehensive income account during the year.
    • Comprehensive income is the sum of net income for the year (or other period such as a quarter) plus other comprehensive income for the same period.
    • The Statement of Comprehensive Income reports comprehensive income, which includes both net income and other comprehensive income.

    Lynn

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