Comprehensive Income

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What is 'Comprehensive Income'

Comprehensive income is a statement of all income and expenses recognized during a specified period. The statement includes revenue, finance costs, tax expenses, discontinued operations, profit share and profit/loss. Most firms report comprehensive income in a separate statement from income resulting from owner changes in equity but have the option of providing information in a single statement.

BREAKING DOWN 'Comprehensive Income'

By definition, the opposite of the word comprehensive is incomplete, empty, limited or narrow. Some may say it is exclusive of something or unfinished in some way. So it is not surprising that when accountants speak of detail, they reference the word comprehensive. The more comprehensive a financial statement, the more detailed.

Comprehensive Income

One of the most important financial statements is the income statement. It provides an overview of sales and expenses, including taxes and interest. At the end of the income statement is net income or earnings, but net income on the income statement is not necessarily all inclusive. That is, it only includes income from business operations. These are the activities that occur due to the company's business model and day-to-day activities. There are times when companies, especially large companies, make or lose money from the change in value of certain assets. These changes can be found on the cash flow statement; however, the net impact to earnings is found in comprehensive or other comprehensive income on the income statement.

A Few Examples

For a personal finance example, say a co-worker won the lottery. The lottery winnings are considered part of his taxable or comprehensive income but not regular income. In the corporate world, comprehensive income examples include unrealized gains and losses on available-for-sale investments. Comprehensive income also includes cash flow hedges, which can change in value depending on the value of the securities in the market, and debt securities transferred from available for sale to held to maturity, which may incur unrealized gains or losses. Gains or losses can also be incurred from foreign currency translation adjustments. Gains or losses in pensions and/or post-retirement benefit plans are also included in comprehensive income.

In general, items that fall in these categories are infrequent; however, they are not always unusual in nature. For example, when the stock market reached a height in 2000, many companies recorded gains in comprehensive income from investments that had appreciated in value. This appreciation, and the gains from the sale of these investments, inflated earnings. Changes in comprehensive income can also deflate earnings.