Definition
The Statement of Comprehensive Income, also known as a profit and loss statement, is a financial document that presents an overview of a company’s revenues, costs, and expenses over a specific period. It provides a clear picture of a company’s financial performance, including its ability to generate profit by increasing revenue, reducing costs, or both. In addition, it may include items that directly affect a company’s net assets, such as unrealized gains or losses on financial investments.
Key Takeaways
- The Statement of Comprehensive Income represents a detailed view of a company’s financial performance, over a specified timeframe. It includes all income, expenses, profits, and losses that have been incurred.
- It further goes beyond the traditional income statement by adding other forms of income such as unrealized gains or losses on investments, foreign currency translation adjustments, and other items that are typically not part of the net income calculations.
- This statement is crucial for investors and stakeholders as it provides a more comprehensive view of how well a company is performing and the potential sustainability of its profits.
Importance
The Statement of Comprehensive Income is a vital component of financial reporting for a company.
It provides a comprehensive overview of all the company’s revenues, expenses, gains, and losses, not reflected in the traditional income statement.
The inclusion of other comprehensive income items, such as unrealized gains or losses on investments, foreign currency translation adjustments, and pension plan gains or losses, gives a more complete financial picture and aids investors and stakeholders in making informed decisions about the company’s financial health and sustainability.
Therefore, this statement is particularly useful in understanding a company’s performance beyond its net income.
Explanation
The purpose of the Statement of Comprehensive Income, a key component of financial reporting, is to present a company’s financial performance over a specific period, typically a year. It is an expanded version of the Income Statement, also known as Profit and Loss Account, which includes additional items not included in the net profit calculation.
It provides additional information, beyond traditional profit and loss, about how a company’s owners’ equity has changed due to business activities during the reporting period. This report is of paramount importance to investors, creditors, and others interested in a comprehensive view of a company’s profitability and financial performance.
A Statement of Comprehensive Income is used for capturing items of income and expense which are not recognized in profit and loss as these are items that companies feel could distort their true operating performance if included. These items can be unrealized gains or losses, foreign currency translation adjustments, changes in the revaluation surplus or other surplus amounts.
By providing both the traditional income statement and the Statement of Comprehensive Income, a company not only complies with financial reporting standards but also offers readers of the financial statements a more comprehensive look at all the factors that affect the entity’s financial position.
Examples of Statement of Comprehensive Income
Amazon’s Financial Reports: Amazon, like all public companies, is required to release its statement of comprehensive income, often referred to as the income statement. It lists all revenues, costs of goods sold, operating expenses, and any other kind of income or expense. Beyond the net income, it also includes other comprehensive income such as unrealized gains or losses on certain types of investments and foreign currency transaction adjustments.
Coca-Cola’s Financial Statements: Coca-Cola also discloses its statement of comprehensive income to the public. Here you will see their sales revenue, costs associated with producing their product, marketing costs, and other types of expenses. Coca-Cola also includes additional comprehensive income items, which could be from changes in the value of their foreign operations or investment portfolio.
Microsoft Corporation’s Annual Reports: In the case of tech giant Microsoft, their statement of comprehensive income includes revenues from different segments of their business including Product, Office, LinkedIn, Cloud services, etc. It covers costs such as research and development, sales and marketing, general administrative costs, and other operating expenses. Changes in assets and liabilities due to foreign exchange rates may also be included under other comprehensive income. All these examples show how a statement of comprehensive income offers a clear view of a company’s financial status during a particular period. It’s a crucial part of the financial statements used to assess the company’s profitability and business operations.
FAQs for Statement of Comprehensive Income
What is a Statement of Comprehensive Income?
A Statement of Comprehensive Income is an important financial statement that summarises the complete performance of a company over a certain period. It includes all revenue, gains, expenses, and losses, regardless of whether cash was received or paid during that period.
How is a Statement of Comprehensive Income different from an Income Statement?
While both reports provide a measure of a company’s profitability, a Statement of Comprehensive Income includes other comprehensive income which reveals items that are not included in the net income, such as unrealised gains or losses on investments, foreign currency translation gains or losses and changes in the fair value of derivatives.
What are the components of a Statement of Comprehensive Income?
The Statement of Comprehensive Income is composed of two parts – net income (or profit) which is the sum of revenues, gains, expenses, and losses, and other comprehensive income which includes unrealized gains and losses that are hidden from the income statement.
Who needs to prepare a Statement of Comprehensive Income?
All publicly held companies and financial institutions are required to prepare a Statement of Comprehensive Income, as per the generally accepted accounting principles (GAAP).
How do I read a Statement of Comprehensive Income?
When reading a Statement of Comprehensive Income, begin from the top where the total net income from the Income Statement is reported, then move towards the bottom to see the other comprehensive income. This simple structure can provide much insight into a company’s financial health.
Related Entrepreneurship Terms
- Net Income
- Other Comprehensive Income
- Retained Earnings
- Income Statement
- Balance Sheet
Sources for More Information
- Investopedia: A reliable source for financial and investing education.
- KPMG: An international firm providing audit, tax and advisory services. They have detailed resources on financial topics.
- Deloitte IAS Plus: A comprehensive resource for news related to International Financial Reporting Standards (IFRS) and accounting and financial reporting.
- PwC Global: One of the world’s largest accounting firms and a leading advisor in financial matters.
