Other Comprehensive Income (OCI): A Comprehensive Overview
Definition
Other comprehensive income (OCI) refers to unrealized revenues, expenses, gains, and losses that have not yet been realized. These items are not recognized on the income statement and do not impact net income per GAAP reporting standards (Investopedia, 2015).
Recognition and Recording
OCI is recorded on the shareholders’ equity section of the balance sheet. Unlike net income, OCI does not affect the retained earnings account (Wall Street Prep, 2023).
Components of OCI
The components of OCI include (PwC, 2019):
Key Facts
- Definition: Other comprehensive income (OCI) consists of unrealized revenues, expenses, gains, and losses that have not been realized yet.
- Recognition: Items included in OCI are not recognized on the income statement and do not impact net income.
- Balance Sheet: OCI is recorded on the shareholders’ equity section of the balance sheet.
- Impact on Retained Earnings: OCI does not affect the retained earnings account on the balance sheet.
- Examples of Items Included in OCI:
- Unrealized gains and losses from financial instruments such as bonds, derivatives, and hedges.
- Foreign exchange (FX) currency adjustments.
- Unrealized gains and losses on pension plans, such as employee post-retirement plans.
- Unrealized gains and losses from financial instruments (e.g., bonds, derivatives, hedges)
- Foreign exchange (FX) currency adjustments
- Unrealized gains and losses on pension plans (e.g., employee post-retirement plans)
Examples
Examples of items included in OCI are:
- Unrealized gains on a portfolio of bonds
- Foreign currency translation adjustments
- Gains on employee post-retirement plans
Conclusion
Other comprehensive income is an important measure of a company’s value, particularly for larger corporations. By understanding the components and recognition criteria of OCI, investors and analysts can gain a more comprehensive view of a company’s financial performance.
References
- Investopedia. (2015). Other Comprehensive Income: What It Means, With Examples. https://www.investopedia.com/ask/answers/071415/what-are-some-examples-items-count-comprehensive-income.asp
- PwC. (2019). Components of Comprehensive Income. https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/financial_statement_/financial_statement___18_US/chapter_4_reporting__US/43_components_of_com_US.html
- Wall Street Prep. (2023). Other Comprehensive Income (OCI). https://www.wallstreetprep.com/knowledge/oci-other-comprehensive-income/
FAQs
What is OCI?
OCI refers to unrealized revenues, expenses, gains, and losses that have not yet been realized and are excluded from net income on an income statement.
Where is OCI reported on the financial statements?
OCI is reported on the shareholders’ equity section of the balance sheet.
What are some examples of items included in OCI?
Examples include unrealized gains and losses from financial instruments, foreign exchange currency adjustments, and unrealized gains and losses on pension plans.
How does OCI differ from net income?
OCI is not recognized on the income statement and does not impact net income, while net income represents the company’s profit or loss over a specific period.
Does OCI affect retained earnings?
No, OCI does not affect the retained earnings account on the balance sheet.
Why is OCI important for investors and analysts?
OCI provides a more comprehensive view of a company’s financial performance, particularly for larger corporations.
How can I calculate OCI?
OCI is calculated by adding up the unrealized gains and losses from all eligible components, such as financial instruments, foreign currency, and pension plans.