Comprehensive Income: Definition & Example

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  • 0:03 Comprehensive Income Defined
  • 1:14 Non-Owner Changes in Equity
  • 1:39 Foreign Currency…
  • 2:39 Marketable Securities…
  • 3:02 Future Contracts in…
  • 3:59 Lesson Summary
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Lesson Transcript
Instructor: Kimberly Winston

Kimberly has a MBA in Logistics & Supply Chain Management

Knowing the comprehensive income of a firm gives you an in-depth financial understanding of a firm. In this lesson, you'll learn what comprehensive income is as well as when and where it is reported.

Comprehensive Income Defined

When the word 'comprehensive' is used to describe something, it usually means that the noun following it will be very detailed, such as a comprehensive study. It may also mean that the noun following it will cover parts of something that has not been previously covered, such as with the term 'comprehensive insurance.' It means the same thing when it is used to describe a firm's income.

A firm's income statement gives an overview of how they're doing financially. A statement of comprehensive income draws a more detailed picture of the firm's financial picture. It is a financial term used to describe all transactions that cause non-owner-related changes in a firm's equity. It identifies and details changes in equity that were not previously covered on other financial statements.

It should also be noted that comprehensive income statements are more likely to be utilized by large, public firms. The finances of smaller firms have a tendency to be less complex. Shareholders for small firms may not require as detailed an accounting of the firm's finances as larger firms need to provide. A comprehensive income statement should be included in the financial records of any company that reports its financial records and has comprehensive income.

Non-Owner Changes in Equity

What are non-owner-related changes in a firm's equity? These are any changes in a company's net income that occur as a result of external forces. There are four categories of sources of non-owner change in equity. They are foreign currency transactions, minimum pension liability, adjustments in marketable securities that are held for sale, and the change in value of futures contracts in hedged position.

Foreign Currency Transactions

The first category is foreign currency transactions. Have you ever taken a trip and had to exchange your money for foreign currency? What happens if the exchange rate changes? Your money may end up worth more or less than it originally was worth. When companies conduct transactions involving foreign currency they may encounter the same fluctuation in exchange rates, which may increase or decrease what their money is worth or their firm's equity.

Minimum Pension Liability

A minimum pension liability is the amount of money that a company's responsible for paying its pensioners. Not many companies offer pension plans anymore. However, if a company had a pension plan, a pension liability would exist if the plan's obligation to pensioners was higher than its worth. Let's say that Company X has a pension obligation of $350,000, but the value of the pension was only $200,000. Then Company X would have a pension liability of $150,000. This liability would be shown on the comprehensive income statement as a loss of shareholder equity.

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