In business accounting, other comprehensive income, or OCI, includes those revenues, expenses, gains and losses that have not yet been realized. A basic example is a portfolio of bonds that have not yet been sold. Gains or losses from the changing value of the bonds cannot be realized until they are sold, so the interim adjustments are recognized in other comprehensive income.
How Is Comprehensive Income Defined?
The accounting treatment of comprehensive income is established in the Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." According to this statement, any income is comprehensive if it changes the equity of a business enterprise without involving an owner's investment or creating a distribution to an owner.
OCI can be found as a line item on a company's balance sheet. Specifically, it is located under the equity section of the balance sheet, as well as under a related statement called the consolidated statement of equity.
Common Examples of Other Comprehensive Income
Any held investment classified as available for sale, which is a non-derivative asset not intended to be held until maturity and is not a loan or receivable, can create recognizable comprehensive income.
The previous example of a bond portfolio is such an asset as long as the business does not classify the bonds as held-to-maturity. Any change in the value of the available-for-sale asset can be included.
Foreign currency transactions can create gains or losses if the balance of a company's currency holdings fluctuates, which they often do. The only companies that really have to pay attention to foreign currency-derived comprehensive income are large firms with dealings in many different currencies.
Pension plans can also create comprehensive income. If the value of the pension plan increases, the difference between the old value and new value can be recognized as comprehensive, minus any distributions to pension recipients.