Comprehensive Income

By WILL KENTON
 Updated Jul 11, 2019
What is Comprehensive Income?
Comprehensive income is the variation in a company's net assets from non-
owner sources during a specific period. Comprehensive income includes net
income and unrealized income, such as unrealized gains or losses on
hedge/derivative financial instruments and foreign currency transaction gains or
losses. Comprehensive income provides a holistic view of a company's income
not fully captured on the income statement.

Comprehensive Income

Understanding Comprehensive Income

Income excluded from the income statement is reported under "accumulated
other comprehensive income" of the shareholders' equity section. The purpose of
comprehensive income is to include a total of all operating and financial events
that affect owners' interests in a business. Comprehensive income may report
amounts per month, quarter, or year. 

Comprehensive Income in Financial Statements

One of the most important financial statements is the income statement. It
provides an overview of revenues and expenses, including taxes and interest. At
the end of the income statement is net income; however, net income only
recognizes incurred or earned income and expenses. Sometimes companies,
especially large firms, realize gains or losses from fluctuations in the value of
certain assets. The results of these events are captured on the cash flow
statement; however, the net impact to earnings is found under "comprehensive"
or "other comprehensive income" on the income statement.

Aside from the income statement, comprehensive income is also included in the
statement of comprehensive income. Both cover the same time period, but the
statement of comprehensive income has two major sections: net income (derived
from the income statement) and other comprehensive income (e.g., hedges). At
the end of the statement is the comprehensive income total, which is the sum of
net income and other comprehensive income. In some circumstances,
companies combine the income statement and statement of comprehensive
income into one comprehensive statement. However, a company with other
comprehensive income will typically file this form separately. This statement is
not required if a company does not meet the criteria to classify income as
comprehensive income.

Example of Comprehensive Income

Consider an example in which a co-worker wins the lottery. The lottery winnings
are considered part of his taxable or comprehensive income but not regular
earned income. In business, comprehensive income includes unrealized
gains and losses on available-for-sale investments. Comprehensive income also
includes cash flow hedges, which can change in value depending on the
securities' market value, and debt securities transferred from available for sale to
held to maturity, which may also incur unrealized gains or losses. Gains or losses
can also be incurred from foreign currency translation adjustments and in
pensions and/or post-retirement benefit plans.

Comprehensive income excludes owner-caused changes in equity, such as the

sale of stock or purchase of Treasury shares. Commonly, a standard
comprehensive income (CI) statement is attached under a separate heading at
the bottom of the income statement. The net income from the income statement
is transferred to the CI statement and adjusted further to account for non-owner
activities. The final figure is transferred to the balance sheet under "accumulated
other comprehensive income."

Profit and Loss Statement (P&L)

By NATHAN REIFF
 Reviewed By JULIUS MANSA 
 Updated Apr 28, 2020
What Is a Profit and Loss Statement (P&L)?
The profit and loss (P&L) statement is a financial statement that summarizes the
revenues, costs, and expenses incurred during a specified period, usually a fiscal
quarter or year. The P&L statement is synonymous with the income statement.
These records provide information about a company's ability or inability to
generate profit by increasing revenue, reducing costs, or both. Some refer to the
P&L statement as a statement of profit and loss, income statement, statement of
operations, statement of financial results or income, earnings statement or
expense statement.

P&L management refers to how a company handles its P&L statement through
revenue and cost management.

KEY TAKEAWAYS
  The P&L statement is a financial statement that summarizes the revenues,
costs, and expenses incurred during a specified period.
 The P&L statement is one of three financial statements every public
company issues quarterly and annually, along with the balance sheet and
the cash flow statement.
 It is important to compare P&L statements from different accounting
periods, as the changes in revenues, operating costs, R&D spending, and
net earnings over time are more meaningful than the numbers themselves.
 Together with the balance sheet and cash flow statement, the P&L
statement provides an in-depth look at a company's financial performance.
Understanding a Profit and Loss Statement (P&L)

Investopedia/Grace Kim
The P&L statement is one of three financial statements every public company
issues quarterly and annually, along with the balance sheet and the cash flow
statement. It is often the most popular and common financial statement in a
business plan as it quickly shows how much profit or loss was generated by a
business.

The income statement, like the cash flow statement, shows changes in accounts
over a set period. The balance sheet, on the other hand, is a snapshot, showing
what the company owns and owes at a single moment. It is important to compare
the income statement with the cash flow statement since, under the accrual
method of accounting, a company can log revenues and expenses before cash
changes hands.

The income statement follows a general form as seen in the example below. It
begins with an entry for revenue, known as the top line, and subtracts the costs
of doing business, including the cost of goods sold, operating expenses, tax
expenses, and interest expenses. The difference, known as the bottom line,
is net income, also referred to as profit or earnings. You can find many templates
for creating a personal or business P&L statement online for free.

It is important to compare income statements from different accounting periods,

as the changes in revenues, operating costs, research and development
spending, and net earnings over time are more meaningful than the numbers
themselves. For example, a company's revenues may grow, but its expenses
might grow at a faster rate.

Profit and Loss Statement (P&L) Example

Below is Caterpillar Inc.'s income or P&L statement for 2013 and 2014 (all figures
in USD millions except per-share data):1

Twelve Months Ended December 31, 2014 2013

Sales and revenues:    
52,14
Sales of Machinery, Energy & Transportation 52,694
2
Revenues of Financial Products
3,042 2,962
 
55,18
Total sales and revenues 55,656
4
Operating costs:    
39,76
Cost of goods sold 40,727
7
Selling, general and administrative expenses 5,697 5,547
Research and development expenses 2,135 2,046
Interest expense of Financial Products 624 727
Other operating (income) expenses 1,633 981
49,85
Total operating costs 50,028
6
Operating profit 5,328 5,628
Interest expense excluding Financial Products 484 465
Other income (expense) 239 (35)
Consolidated profit before taxes 5,083 5,128
Provision (benefit) for income taxes 1,380 1,319
Profit of consolidated companies 3,703 3,809
Equity in profit (loss) of unconsolidated affiliated companies 8 (6)
Profit of consolidated and affiliated companies 3,711 3,803
Less: Profit (loss) attributable to noncontrolling interests 16 14
Profit [footnote 1: Profit attributable to common shareholders] 3,695 3,789
Profit per common share 5.99 5.87
Profit per common share – diluted [footnote 2: Diluted by assumed exercise
5.88 5.75
of stock-based compensation awards using the treasury stock method]
Weighted-average common shares outstanding (millions)    
- Basic 617.2 645.2
- Diluted [see footnote 2] 628.9 658.6
Cash dividends declared per common share 2.70 2.32

tOne can use the income statement to calculate several metrics, including the
gross profit margin, the operating profit margin, the net profit margin and the
operating ratio. Together with the balance sheet and cash flow statement, the
 income statement provides an in-depth look at a company's financial
performance.

Loss
In financial accounting, a loss is a decrease in net income that is outside the normal
operations of the business. Losses can result from a number of activities such as; sale of an
asset for less than its carrying amount, the write-down of assets, or a loss from lawsuits.

Profit
Accounting profit is a company's total earnings, calculated according to generally
accepted accounting principles (GAAP). It includes the explicit costs of doing business, such
as operating expenses, depreciation, interest, and taxes.

What Is Other Comprehensive Income?

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By ANDREW BLOOMENTHAL
 Updated May 7, 2019
In business accounting, other comprehensive income (OCI) includes revenues,
expenses, gains, and losses that have yet to be realized. A traditional example of
an OCI is a portfolio of bonds that have not yet matured and consequently
haven't been redeemed. Gains or losses from the changing value of the bonds
cannot be fully determined until the time of their sale, therefore, the interim
adjustments are recognized in other comprehensive income.

How Is Comprehensive Income Defined?

The accounting treatment of comprehensive income is established in
the Statement of Financial Accounting Standards No. 130, entitled "Reporting
Comprehensive Income." The website of the Financial Accounting Standards
Board (FASB), which published the statement, says the following:

"This Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other financial
statements. This Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position."

OCI can be found as a line item on a company's balance sheet, located under

the equity section of the document. OCI may also be listed under a related
statement called the "consolidated statement of equity." (For related reading, see
"The Importance of Other Comprehensive Income")

KEY TAKEAWAYS

 In business accounting, other comprehensive income (OCI) includes

revenues, expenses, gains, and losses that have yet to be realized.
 The accounting treatment of comprehensive income is established in
the Statement of Financial Accounting Standards No. 130, entitled
"Reporting Comprehensive Income," which was published by the Financial
Accounting Standards Board.
 A bond portfolio is a prime example of an asset that may be considered
OCI, as long as the business does not classify the underlying bonds as
held-to-maturity. 
Common Examples of Other Comprehensive Income
Any held investment classified as available for sale, which is a non-derivative
asset not intended to be held until maturity and isn't a loan or a receivable, may
be recognized as comprehensive income.

The previously mentioned bond portfolio is such an asset, as long as the

business does not classify the bonds as held-to-maturity. Any change in the
value of the available-for-sale asset may be included.

Foreign currency transactions can create gains or losses if the balance of a

company's currency holdings fluctuates, which they frequently do. But the only
companies which truly need to pay attention to foreign currency-derived
comprehensive income are large firms that deal in many different currencies.

Pension plans can also create comprehensive income. If the value of the plan
increases, the difference between the old value and new value can be
recognized as comprehensive, minus any distributions to pension recipients.

How to Prepare a Single-Step Income

Statement
When you prepare a Single-Step Income Statement, make sure you title it properly with the
name of the company, the name of the statement (i.e. income statement), the period covered by
the statement and then list all revenue accounts and total them up, list all expense accounts and
total them up, and then in one single-step, take Total Revenues less Total Expenses to arrive at
Net Income.

Preparing a single-step income statement is a relatively straightforward process. Small

businesses can create the document on their own or hire an accountant to generate the
report. Here are the steps to prepare a single-step income statement:

CHOOSE THE REPORTING PERIOD

The first step in creating a single-step income statement is defining

the reporting period for the document so that all the data you’re
presenting is comparable. Generally, businesses choose to prepare
income statements on a yearly, quarterly or monthly basis. Unlike
corporations, which are required by law to release quarterly and
annual financial statements, small businesses aren’t heavily regulated
in terms of how often they need to prepare income statements. But
since they detail important information about the profitability of your
company, it can be helpful to prepare income statements monthly or
quarterly.

INCLUDE A HEADER

Single-step income statements open with a header conveying important information

about the document. The header states the name of the company, identifies the report
as an income statement and includes the time period covered in the document.

ADD UP REVENUES

Next in your single-step income statement, you’ll need to create the first main section of
the report, Revenues. The Revenues section covers the top portion of the report, with
the Expenses section directly below it. Enter each of the revenue line items your
business has to report and then add them up to find the revenue subtotal. Enter that
figure into the Total Revenues line at the bottom of the Revenues section.

ADD UP EXPENSES

The second main section of a single-step income statement is for Expenses. Create the
Expenses section directly below Revenues. Enter each expense account to the report
as a line item and add them all up to calculate the subtotal of your Expenses section.
Add the figure to the Total Expenses line item at the bottom of the section.

CALCULATE NET INCOME

To calculate your business’s net income, subtract your Expenses and
Losses from your Revenues and Gains. If the net income is a positive
number, then your business is reporting a profit for that reporting
period. If the net income is a negative number, then your business is
reporting a loss.

How to Prepare a Multi-Step

Income Statement
Preparing a multi-step income statement is a more complex process than creating a
single-step report. Here are the steps you need to follow to create a multiple-step
income statement for your business.

1.  SELECT YOUR REPORTING PERIOD

Before you prepare your income statement, you need to select a reporting period.
Typically, income statements are prepared monthly, quarterly or annually. Publicly
traded corporations are required by law to prepare financial statements both quarterly
and annually. Preparing statements every month can help you track how your profits
change over time, which is valuable information to have when making financial
decisions about your business, like whether to invest in new equipment.

2.  CREATE A DOCUMENT HEADER

The header of your multi-step income statement conveys important information to

readers. It states the name of your company, it identifies the document as an income
statement and it defines the reporting period covered by the document.

3.  ADD OPERATING REVENUES

The top section of your multi-step income statement covers your total operating
activities. First, add your operating revenues, which is the sales revenue generated from
selling your goods or services.

4.  ADD OPERATING EXPENSES

Next, add your total operating expenses to the operating activities section. This would
include cost of goods sold, as well as costs such as advertising expenses, salaries and
administrative expenses, including office supplies and rent.

5.  CALCULATE GROSS PROFIT

To calculate the gross profit, subtract the cost of goods sold from the net sales. Add the
final number as a line item under the cost of goods sold and title it Gross Profit.

6.  CALCULATE OPERATING INCOME

Next, you’ll need to calculate operating income. To do so, subtract your operating
expenses from your gross profit. Add the final calculation as a line item at the bottom of
your operating activities section, titled Net Operating Income or Income from
Operations.

7.  ADD NON-OPERATING REVENUES AND

EXPENSES

In the bottom section of your income statement, below your operating activities, create a
section for your non-operating activities. Add your revenues and expenses from non-
operating activities, including interest and the sale or purchase of investments.

8.  CALCULATE NET INCOME

The final step in creating a multi-step income statement is calculating net income. To do
so, add together your operating income and your non-operating items. Add the total to
the bottom of the income statement as Net Income. If it is a positive number, you’re
reporting a profit. If the total is a negative number, you’re recording a loss.

How to Prepare a Multi-Step Income

Statement
Preparing a multi-step income statement is a more complex process than creating a
single-step report. Here are the steps you need to follow to create a multiple-step
income statement for your business.

1.  SELECT YOUR REPORTING PERIOD

Before you prepare your income statement, you need to select a reporting period.
Typically, income statements are prepared monthly, quarterly or annually. Publicly
traded corporations are required by law to prepare financial statements both quarterly
and annually. Preparing statements every month can help you track how your profits
change over time, which is valuable information to have when making financial
decisions about your business, like whether to invest in new equipment.

2.  CREATE A DOCUMENT HEADER

The header of your multi-step income statement conveys important information to
readers. It states the name of your company, it identifies the document as an income
statement and it defines the reporting period covered by the document.

3.  ADD OPERATING REVENUES

The top section of your multi-step income statement covers your total operating
activities. First, add your operating revenues, which is the sales revenue generated from
selling your goods or services.

4.  ADD OPERATING EXPENSES

Next, add your total operating expenses to the operating activities section. This would
include cost of goods sold, as well as costs such as advertising expenses, salaries and
administrative expenses, including office supplies and rent.

5.  CALCULATE GROSS PROFIT

To calculate the gross profit, subtract the cost of goods sold from the net sales. Add the
final number as a line item under the cost of goods sold and title it Gross Profit.

6.  CALCULATE OPERATING INCOME

Next, you’ll need to calculate operating income. To do so, subtract your operating
expenses from your gross profit. Add the final calculation as a line item at the bottom of
your operating activities section, titled Net Operating Income or Income from
Operations.

7.  ADD NON-OPERATING REVENUES AND

EXPENSES

In the bottom section of your income statement, below your operating activities, create a
section for your non-operating activities. Add your revenues and expenses from non-
operating activities, including interest and the sale or purchase of investments.

8.  CALCULATE NET INCOME

The final step in creating a multi-step income statement is calculating net income. To do
so, add together your operating income and your non-operating items. Add the total to
the bottom of the income statement as Net Income. If it is a positive number, you’re
reporting a profit. If the total is a negative number, you’re recording a loss.