What Is Comprehensive Income: Definition And Examples

Updated 12 October 2022

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Comprehensive income (CI) allows finance professionals to record both earned and unearned income of a business from all sources. A CI statement can be helpful in assessing the total income of a business that an income statement may fail to record. Understanding the basics of CI can help you gain a detailed understanding of all the potential sources of income besides sales revenue. In this article, we define comprehensive income, compare it to related terms, see different ways to recording it, explain its benefits, discover it on different financial instruments and provide an example.

What Is Comprehensive Income?

Comprehensive income is a financial term that refers to the net income of a business, including expenses, revenues and unrealised gains and losses. Unrealised income is the amount of money that comes from non-owner sources, such as foreign currency transactions. CI can show the accurate income of a company over a specific period of time.

A CI income statement may contain net income or net loss, foreign currency transaction adjustments, post-retirement benefit plans and cash flow hedges. CI can also show the changes in the net assets of a company for a specific time period. After calculating the CI, you can separate the total amount into two categories. You can add the net income to the retained earnings and the other CI to a list called accumulated other comprehensive income.

Difference Between CI, Other CI And Net Income

Accountants often use other comprehensive income to calculate the CI. Net income is the total revenue of a company that comes from sales. Other CI is ineligible to get counted as net income as it contains gains and losses that the company fails to realise. Here are the key differentiators of CI, other CI and net income:

CI

Here are some points that can help you understand CI:

It includes the net income of the company.
It may provide fewer details about the income.
It involves both the realised and unrealised income of the company.
It may work as an umbrella statement.

Other CI

Here are major details about other CI:

It is an element that gets added to the net income to determine CI.
It is different from the regular income statement.
It can be useful for displaying the impact on earnings.
It may get reported under the equity of the shareholders.

Net income

Here are helpful points to give you a better understanding of net income:

It reflects the profit of the company once all the expenses get paid.
It excludes the representation of the cash flow of the company.
It is also called net earnings or net profit.
It is in the last line of the income statement.
It helps in determining the net profit margin.

Different Ways To Record CI

Here are the different ways that companies may record their CI:

Statement of CI

A statement of CI can reflect the adjustments to equity during a specific period of time. It also clearly displays the CI of a company. A statement of CI may consist of two elements, which are net income and other CI. These elements follow the same time period and get added together to calculate the CI of the company.

Income statement

An income statement is helpful in determining the financial performance of a company for a specific time period. It can help companies gain a detailed understanding of their earnings. Income statements can help finance professionals determine if a business has gained profit or lost money for a certain period of time. It is a clear indication of the revenues and expenses of the company.

Tax statement

It is another method that businesses may use to determine their CI. In this method, unrealised gains and losses get calculated and reported differently for tax purposes. Tax statements may fluctuate according to the market trends, performance of the stocks and economic events. Due to this fluctuation, a tax statement fails to report CI as part of net income. If an asset sells and the value gets reported, the CI may change to regular income and come under net income. If the income classifies as CI, the company may file a statement with the other CI.

Benefits Of A Statement Of CI

Recording the CI statement can help a company in terms of its financial performance. Here are a few benefits of a statement of CI that can help you understand why many companies consider it valuable information:

Provides detailed information about the revenue

The main purpose of an income statement is to provide the necessary information related to revenue generation and costs incurred. It highlights the cost of services or the products sold that allows companies to analyse their operational activities. A CI statement can benefit stakeholders by providing them with timely knowledge about the performance of the company. Having a statement of CI can allow stakeholders to understand smaller sections for the income.

Plays a significant role in investment analysis

Before making any investment deal, investors may want to have all the details related to the financial performance of the company. A CI statement allows them to study the earnings and profits coming from each share. This can give an estimated idea of the amount of money they may generate. Businesses can also use a CI statement to evaluate their financial performance.

Recording CI On Different Financial Instruments

Here is how CI can get recorded on different financial instruments:

Derivative instruments

These are the financial instruments whose value is dependent on the performance of different assets of the company. These assets can be stocks, currencies, bonds, commodities and other elements. Derivative instruments get divided into two categories which are forward commitments and contingent claims. The derivative financial instruments are more flexible and less regulated than exchange trade derivatives.

Debt securities

Debt securities are the financial instruments that companies can use to buy or sell prior to maturity. It is a form of debt that tells that the company may pay a specific amount by a particular date from the issue. Debt securities can provide guaranteed dividends and a specific rate of return. Some benefits of debt securities are providing investors with repayment of their initial capital investment and interest upon maturation. Finance and accounting professionals may consider debt securities as a steady flow of income, as they offer guaranteed payments through interest.

Financial investments

Many companies focus on investing a certain amount of money over a specific time frame, expecting some gain from it. Common examples of financial investments can be gold, mutual funds, real estate, stocks and bonds. Before investing, businesses may perform research and analyse the best available option for them. Studying the market can allow companies to analyse the risks associated with every plan and select the one that can give maximum return.

Pension and retirement plan

Pension and retirement plans help ensure the continued flow of income after retirement. These plans may come with tax benefits. Pension and retirement plans also cover the insurance of the pension receiver. Many companies provide a guaranteed amount of income after the retirement of employees. Pension plans can provide protection from various investment risks.

Example Of CI

Here is a real-life example of CI to help you gain a better understanding of this topic:

Sneha wins prize money on a television show. The prize money is separate from her taxable net income and comes under the CI. This is because the source of this amount is different from her employment. The prize money gets reported as part of taxable CI in her statement of CI.