What Is Comprehensive Income? It’s Income Not yet Realized

Comprehensive income is the profit or loss in a company’s investments during a specific time period. Knowing these figures allows a company to measure changes in the businesses it has interests in. These amounts cannot be included on a company’s income statement because the investments are still in play.

Here’s What We’ll Cover:

What Is a Statement of Comprehensive Income?

What Are Examples of Comprehensive Income?

Why Is Comprehensive Income Important?

Are Unrealized Gains Taxable?

Is Comprehensive Income the Same as Income Statement?

What Is a Statement of Comprehensive Income?

A statement of comprehensive income provides details about a company’s equity that the income statement does not provide. Another way to look at comprehensive income is as “other income”.

To calculate this, a company’s accountant will take the net income from the income statement and add or subtract this “other income” as necessary.

Here is what a comprehensive income statement could look like:

Statement of Comprehensive Income:
Franklin’s Furniture & Design

Revenues
Product Sales: $505,000

Total Revenue: $505,000

Expenses
Wages $80,000
Vehicle Expenses $15,000
Property Tax $8,000
Insurance $5,000
Product $150,000
Telephone $3000
Advertising $4000
Banking $500
Income Tax Expenses $60,000

Total Expenses: $325,500

Net Income: $179,500
(Revenue – Expenses)

———————————————————————

Other Comprehensive Income
Unrealized Gain
from Financial Investments : $42,000
Unrealized Losses
from Debt Security -$12,000

Comprehensive Income Total: $209,500

The gains and losses from Franklin’s business investments are not included on the company’s income statement because those investments are “unrealized”, meaning they are still in play.

You can see in the above example how generating a comprehensive income statement can give its management a more accurate picture of the company’s true income.

What Are Examples of Comprehensive Income?

Examples of comprehensive income include gains or losses on:

Available-For-Sale Securities

This is a security that a company plans to hold for a long time. They are considered non-strategic.

Financial Investments

Examples of financial investment include stocks, bonds, mutual funds, gold and real estate.

Pension and Retirement Plans

Pension and retirement plans are extremely popular investments for many companies.

Derivative Instruments

This is a financial security whose value relies on an underlying asset, such as a currency.

Debt Security

A debt security is a financial instrument, such as a government bond. It pays back the face amount plus a predetermined interest rate.

Why Is Comprehensive Income Important?

Comprehensive income is important because the amounts help to reflect a company’s true income during a specific time period. This is valuable information for businesses with a large amount of investments. If the company is not doing well, but the investments are, then the realization of some assets may help keep the company afloat during periods of less profit. As well, if investments continue to do poorly, as reflected in multiple comprehensive income statements, then maybe that’s a sign for the company to rethink its investment strategy.

Are Unrealized Gains Taxable?

No, they are not. Unrealized gains (or losses) exist only to demonstrate what an investment’s current value is. They are not taxable until they are ‘realized’, for instance a stock is sold.

Let’s give an example. Richard’s Running Shoes is a chain in four states that sells a range of athletic clothing and shoes to its customers. His stores are very profitable, and one day Richard’s company purchases stock in Heather’s Health Drinks, a company that makes nutritious drinkables. His company purchases 5000 shares at $15.00 a share.

Some months later his accountant issues an income statement. When Richard examines the statement, he can see immediately his company’s revenue and expenses, and net income. What he can’t see on the income statement is any information about the company’s purchase of the 5,000 shares and how that investment is working out for the company. Without that information, Richard cannot do a proper financial analysis.

Richard needs a comprehensive income statement to get the complete picture, and requests one. When he gets it, he can see all the details of the income statement included, plus this other income. He can see the company’s original investment of $45,000 is now worth $60,000 because there is $15,000 in unrealized gains from financial investments included on the statement.

This does not mean the company now has $15,000 in profit. This is because it’s an ‘unrealized’ gain. The stock hasn’t been sold, so it’s not yet income. But the statement shows Richard the stock’s value to his company if they did decide to sell the shares.

A year later, when Richard’s company does sell the stock, the sale will be subject to taxes.

Is Comprehensive Income the Same as Income Statement?

It is not. A comprehensive income statement needs income statement information in order to be created. It will have a different total at the bottom because this statement will take into account the company’s investments and their current values.

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