Statement of Comprehensive Income vs. Income Statement

Statement of Comprehensive Income vs. Income Statement

by Edward A. Haman, Esq., November 2018

Before you can understand a statement of comprehensive income, you first need to understand a standard income statement, which is a document that summarizes what most people would think of as income and expenses. For most companies, this report, also known as a profit and loss (P&L) statement, shows income from the sale of goods or services as well as expenses actually paid. This overview of income and expenses from the daily operation of the business is commonly referred to as realized income or traditional income.

Calculator and pen sitting on financial documents

A statement of comprehensive income, on the other hand, provides more details about the company's financial situation than what is found on a basic income statement. This more robust document is usually only used by a larger corporation, especially one operating in more than one country. Most small corporations do not need a statement of comprehensive income, but one may be needed for a growing business seeking new investors or operating in multiple countries.

Other Comprehensive Income vs. Comprehensive Income

To avoid confusion when discussing comprehensive income statements, it's important to understand the difference between the following two terms, which sound similar but have very different meanings:

  • Other comprehensive income. Income from a change in value of certain assets that is not reflected on the standard income statement.
  • Comprehensive income. The total of income reflected on the standard income statement plus other comprehensive income.

Other Comprehensive Income Overview

The category of income known as “other comprehensive income" refers to types of income that are not part of the standard income statement because they have not been realized. Other comprehensive income consists of gains or losses in the value of assets being held by the company. These fluctuations, which affect the value of both the company and the owner's interest in the company, are not considered part of the income and expenses from daily operations.

Other comprehensive income is unrealized income and includes gains or losses in assets such as:

  • Securities of other corporations held by the company
  • Foreign currency held by the company
  • Derivative or hedge financial instruments
  • Pension plans

Other comprehensive income does not include changes relating to ownership, such as dividends paid to shareholders, new shares issued, or share buy-backs.

Statement of Comprehensive Income

A statement of comprehensive income is a financial statement that includes both standard income and other comprehensive income. To create one, start with a standard income statement, add a section for other comprehensive income, then show the total of both.

A standard income statement format has a line for the total revenue, lines for various expense categories, and a line for the net income (total revenue minus total expenses). To make it a statement of comprehensive income, you carry down the total standard net income, show any gains or losses from other comprehensive income, and end with a total of the standard net income plus the total other comprehensive income.

Although your business may not need to be concerned with a statement of comprehensive income, you may still need to create one or more annual reports. If you still need help with creating your financial documents or annual reports, consider using an online service provider.