Income Statement# 6 Defines Comprehensive

¶ … Income

Statement# 6 defines Comprehensive income as consisting of:

The change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

In other words and, as concisely summarized by statement # 5, comprehensive income implies "total nonowner changes in equity."

Comprehensive income, divided under net income and diverse sources of comprehensive income, describes the total of all income including net income, and is recorded in the statement in order to evaluate changes in equity that occurred under nonowner propriety / activity. Until now, some of these nonowner-induced changes in equity were recorded in the income statements, whilst others were reported on the balance sheet.

Comprehensive income is divided into components in order to provide a more thorough evaluation of the activities of each enterprise, thereby assisting investors and others in assessing the activities of each enterprise and the timing and magnitude of their flows.

The FASB requires that net income be indicated clearly on the statement as being a component of comprehensive income. In that manner, it may either be reported in a separate statement of comprehensive income or be reported below net income in the statement. Items of comprehensive income may also be disclosed either net of taxes or before taxes, but if reported before taxes the tax prices of individual comprehensive items must be indicated on the statements or in notes appended to the statement.

The accumulated balance of other comprehensive income items is to be reported on the balance sheet (in the equity section) in a category that is separate from contributed capital and retained earnings. In this separate category, either a total of all the items may be reported or the accountant may choose to record the accumulated balance of each item. If the former option is selected, the accountant must report the individual balances either in notes appended to the financial statement or in the statement of changes in the equity section.

Finally, categories that may belong to comprehensive income, but do not need to be included in the financial statement since they are excluded from net income, include revenues, gains, and losses

2. Definition of classifications within net income.

The FASB distinguishes between two major categories: net income and other comprehensive income. The net income category is, more or less, the general income statement form that consists of classifications such as income from unusual items, continuing operations, discontinued operations, and cumulative effects of changes in accounting principles. An example here may be income from an original Rembrandt that one possesses and, occasionally, loans for parties, or income from one's continuing retail business, or income that is still coming in from last month's rental payment even though the original inhabitants have discontinued their lease. This part of the income statement remains unchanged. The only element that SFAS 130 appends is the category of other comprehensive income.

3. Definition of classifications within other comprehensive income

Included in other comprehensive income are times such as unrealized gains and losses on particular debt and equity securities investments, minimum pension liability adjustments, and foreign currency translation adjustments. Examples here include the sale or liquidation of an investment in a foreign entity; or a non-materialized loss on a bank loan.

Other comprehensive items must be adjusted for both amounts currently recorded in the net category and for the same amounts previously recorded in the other comprehensive income statement of an earlier period.

4. Explanation of reclassisfication adjustments.

In order to avoid more than one calculation of a comprehensive income item that had appeared in that same, or an earlier period, adjustments, known as 'reclassisfication adjustments' are made. An example here is gains on investment securities that were realized and included in net income of the current period but that had also been included and taken into account when appearing when they first initiated as unrealized holding gains. These must be deducted through other comprehensive income of the period in which they are included as net income so as to prevent their dual reconfiguration.