For those who are just beginning to understand the financial markets, it cannot be easy to differentiate between various types of income. With so many accounting concepts and principles that need to be considered when making decisions about investments or other activities related to money, the sheer number of terms can seem overwhelming. Two such terms that often come up in conversations concerning financial matters are "comprehensive income" and "other comprehensive income," which have distinct differences despite their similar sounding names. In this blog post, we'll look at these two different types of incomes and explore what sets them apart.

Definition of Comprehensive Income

Comprehensive income is reported on the statement of changes in stockholders' equity and includes all types of income that a company has earned during a given period. This includes

● net income from operations

● gains or losses from investments made by the company

● profits or losses on foreign currency transactions

● any other non-operating items (such as unrealized gains/losses) recorded during the accounting period.

Comprehensive income should also include a "revaluation surplus," which is an amount recognized when there are revaluations to specific assets, such as land, buildings, vehicles, etc., due to changes in market values.

Definition of Other Comprehensive Income

Other comprehensive income is reported under the same statement of changes in stockholders' equity but includes items not included in comprehensive income. These items may include:

● realized gains or losses from investments,

● foreign currency translation adjustments,

● unrealized gains or losses on derivatives and other items accounted for under the fair value method.

In addition to these non-operating items, other comprehensive income can also include a revaluation surplus; however, this is only recognized when revaluations to specific assets, such as land, buildings, vehicles, etc., due to changes in market values.

Difference Between Comprehensive Income and Other Comprehensive Income

The main difference between comprehensive income and other comprehensive income is that the latter is a type of income that does not directly affect net income. While comprehensive income includes all types of income that a company has earned during the period, other total income only contains items that are not directly related to how the business is performing.

Other comprehensive income is also reported on the statement of changes in stockholders' equity. In contrast, total revenue is written on both the balance sheet and the statement of changes in stockholders' equity. Furthermore, realized gains or losses from investments and foreign currency translation adjustments are included as part of other comprehensive income but not as a comprehensive income.

Similarities between the two types of income

Both comprehensive income and other comprehensive income are reported on the statement of changes in stockholders' equity. In addition, both types of income can include a revaluation surplus, an amount recognized when certain assets, such as land, buildings, vehicles, etc., are revalued due to changes in market values.

Benefits of comprehensive income

Comprehensive income can provide greater insight into the financial performance of a company. By including all types of income, total income provides a more holistic picture of how well the business is performing and its overall financial position. This allows investors to make better-informed decisions about their investments.

In addition, comprehensive income can help businesses maintain compliance with accounting standards since it includes all sources of revenue that must be reported by Generally Accepted Accounting Principles (GAAP). Furthermore, by providing an alternative source of information other than net income, comprehensive income can give users a better understanding of how a business is faring even when net income is affected by one-time events or non-operating items.

Benefits of other comprehensive income

Other comprehensive income can provide users with greater insight into a company's financial performance. By including unrealized gains/losses on derivatives and foreign currency translation adjustments, investors can better assess the potential risks associated with investing in a particular business.

In addition, other comprehensive income can help businesses keep track of their investments and ensure compliance with GAAP.

Examples illustrating how they differ in practice

An example of a comprehensive income statement is the company's net income and any realized and unrealized gains/losses on investments, foreign currency translation adjustments, revaluation surpluses, etc.

On the other hand, an example of an Other Comprehensive Income (OCI) statement would include only items not included in comprehensive income, such as unrealized gains/losses on derivatives and foreign currency translation adjustments.

Tips for understanding the differences between them

1. Comprehensive income is the total of all types of income, while other comprehensive income only includes items not directly related to the business's performance.

2. Comprehensive income is reported on both the balance sheet and the statement of changes in stockholders' equity. In contrast, other comprehensive income is reported only on the statement of changes in stockholders' equity.

3. Realized gains or losses from investments and foreign currency translation adjustments are included as part of other comprehensive income but not as a comprehensive income.

4. Comprehensive income can provide a more holistic view of a company's financial performance, whereas other comprehensive income focuses on non-operating items that could affect investment decisions.

Conclusion

Comprehensive income and other comprehensive income provide insight into how a business fares financially. However, they differ in terms of which items they include; In contrast, comprehensive income consists of all types of income earned by the company during the period. Other comprehensive income only contains items not directly related to the business's performance.

FAQs

Q: What is the difference between comprehensive income and other comprehensive income?

A: Comprehensive income includes all revenue the company earns during the period. Other comprehensive income only includes items not directly related to the business's performance, such as unrealized gains/losses on derivatives and foreign currency translation adjustments.

Q: How can understanding comprehensive and other comprehensive income help investors?

A: By providing an alternative source of information other than net income, comprehensive and other comprehensive incomes can give users a better understanding of how a business is faring even when net income is affected by one-time events or non-operating items. This can help investors make better-informed decisions about their investments.