Statement of Comprehensive Income vs. Income Statement

The income statement and the statement of comprehensive income both detail a company’s performance over a specific period. While closely related, they measure performance from distinct perspectives. The income statement focuses on the results of core business activities to arrive at net income. The statement of comprehensive income provides a more encompassing view by including other financial changes.

The Income Statement

The income statement, often called the profit and loss (P&L) statement, shows a company’s financial performance over a specific period, like a quarter or a year. It summarizes how a business incurs revenues and expenses through operating and non-operating activities.

The statement is structured to move from total revenues to a final net income figure. It begins with revenue and subtracts the cost of goods sold (COGS) to arrive at gross profit.

Following gross profit, the statement deducts operating expenses, such as selling, general, and administrative (SG&A) costs. This results in operating income, a measure of profit from core business operations. After accounting for non-operating items like interest and taxes, the statement arrives at its “bottom line”: net income.

The Statement of Comprehensive Income

The statement of comprehensive income presents a full picture of all changes in a company’s equity from non-owner sources during a period. It includes all profits and losses, not just those realized from primary business activities.

The starting point for this statement is the net income figure from the income statement. From there, it adds or subtracts a category of unrealized gains and losses known as “Other Comprehensive Income” (OCI).

By incorporating these items, the statement arrives at a final figure called “Comprehensive Income,” which is the sum of net income and OCI. This total captures value changes that affect a company’s equity but are not part of its operational results.

Understanding Other Comprehensive Income

Other Comprehensive Income (OCI) is composed of unrealized gains and losses, which are profits or deficits that exist on paper but have not been finalized through a transaction. Under U.S. Generally Accepted Accounting Principles (GAAP), these items are separated from net income because they are not direct results of core operations.

A primary component of OCI is unrealized gains or losses on certain investments. For example, changes in the market value of some bonds are recorded in OCI. The gain or loss is “unrealized” because the company has not sold the bonds; once sold, the realized gain or loss is moved from OCI and recognized on the income statement.

Another item in OCI is foreign currency translation adjustments. These arise when a company consolidates the financial statements of foreign subsidiaries and must translate their results into its reporting currency, creating paper gains or losses from fluctuating exchange rates.

Pension plan adjustments also contribute to OCI. These reflect changes in the value of a company’s pension fund assets or its projected benefit obligation. For instance, if pension plan assets perform better than expected, it creates an unrealized gain reported in OCI.

Presentation Methods in Financial Reporting

U.S. GAAP permits companies to present comprehensive income in one of two ways. While the choice of method does not change the final numbers, it alters how the information is organized.

The first option is the single-statement approach. This method uses one continuous “Statement of Comprehensive Income” that starts with revenues and works down to net income. After the net income line, the statement lists the components of OCI to arrive at the final comprehensive income total.

The second option is the two-statement approach. In this format, a company first presents a standalone Income Statement that concludes with the net income figure. Immediately following, it presents a separate Statement of Comprehensive Income that begins with net income, lists the OCI items, and calculates total comprehensive income.