Accumulated other comprehensive income OCI is a line item in the shareholders' equity section of the balance sheet that includes income that is not reported in the income statement.
Other comprehensive income includes unrealized gains and losses on certain types of investments, as well as gains or losses on pension funds and foreign currency transactions.
OCI is excluded from net income, because the transactions are unusual and are not generated through a company's normal business operations. In addition to investment and pension plan gains and losses, OCI includes hedging transactions a company performs to limit losses. By segregating OCI transactions from operating income, a financial statement reader can compare income between years and have more clarity about the sources of income. An investment must have a buy and a sell transaction to realize a gain or a loss.
An unrealized gain or loss means that no sale transaction has occurred. OCI reports unrealized gains and losses for certain investments based on the fair value of the security. Companies can designate investments as available for sale, held to maturity or trading securities.
Unrealized gains and losses are reported in OCI for some of these securities, so the financial statement reader is aware of the potential realized gain or loss in the income statement down the road.
Companies have several types of obligations for funding a pension plan. Some of the income and loss activity for pension plans is reported in OCI.
A defined benefit plan, for example, requires the employer to plan for specific payments to retirees in future years. If the assets invested in the plan are not sufficient, the company's pension plan liability increases. A firm's liability for pension plans increases when the investment portfolio recognizes losses.
Retirement plan expenses and unrealized losses may be reported in OCI. Once the gain or loss is realized, the amount is reclassified from OCI to net income. Investors reviewing a company's balance sheet can use the OCI account as a barometer for upcoming threats or windfalls to net income.
For example, a large unrealized loss from bond holdings today could spell trouble if the bonds are nearing maturity. A multinational company that must deal with different currencies may require a company to hedge against currency fluctuations, and the unrealized gains and losses for those holdings are posted to OCI. Dictionary Term Of The Day. Broker Reviews Find the best broker for your trading or investing needs See Reviews.
Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. A celebration of the most influential advisors and their contributions to critical conversations on finance. Become a day trader. Accumulated Other Comprehensive Income Share. What is 'Accumulated Other Comprehensive Income' Accumulated other comprehensive income OCI is a line item in the shareholders' equity section of the balance sheet that includes income that is not reported in the income statement.
The Differences Between Realized and Unrealized Gains and Losses An investment must have a buy and a sell transaction to realize a gain or a loss. Factoring in Pension Plans Companies have several types of obligations for funding a pension plan.
Examples of Other Risks Investors reviewing a company's balance sheet can use the OCI account as a barometer for upcoming threats or windfalls to net income. Capital Gain Lock In Profits. Get Free Newsletters Newsletters.More...