Accumulated Other Comprehensive Income

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What is 'Accumulated Other Comprehensive Income'

Accumulated other comprehensive income is an entry that is generally found in the shareholders' equity section of the balance sheet. Accumulated other comprehensive income is used to sum up unrealized gains and losses because those items have not been settled. This account can include unrealized gains and losses from investments held by the firm, company pension funds and foreign currency transactions.

BREAKING DOWN 'Accumulated Other Comprehensive Income'

Companies use accumulated other comprehensive income to take into account the fair value of investments that have not yet been bought or sold. For example, securities held by a company that have increased in value but have not yet been sold haven’t given the company profit. To record the increase in an unrealized item is to indicate the potential gain if the security is sold. Companies also use accumulated other comprehensive income to record unrealized gains or losses in a pension plan. Once the gain or loss has been realized, it will be shifted from accumulated other comprehensive income to net income.

Investors reviewing a company’s balance sheet can use the accumulated other comprehensive income account as a barometer for upcoming threats or windfalls to net income. For example, a large unrealized loss from bond holdings today could spell trouble if the bonds are nearing maturity. A multinational company that must deal with different currencies may require a company to hedge against currency fluctuations, with the unrealized value of those holdings also appearing in accumulated other comprehensive income.

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