 Hello and welcome to the session in which we would look at other comprehensive income. Other comprehensive income is a topic that's covered on the CPA exam as well as in your accounting courses. If you are studying for the CPA exam, I strongly suggest you check out my website farhatlectures.com. I do not replace your existing accounting course, whether it's Becker, Roger or any other course, I can be in addition, a useful addition like a vitamin to your course, because the reason is as I teach the material, other courses, they review it with you. If you are studying for your CPA exam, don't short change yourself. My subscription is minimal for what you're going to be getting and it's going to help increase your score and understanding by 10 to 15 percent at least. At least check out my website farhatlectures. If not for anything, it's just to check out your university CPA exam. How well is your university performing? This tells you about the rigor of your accounting program. If you're taking accounting courses, please check out my website. I do have many accounting courses, supplemental material, that's going to help you connect with me on LinkedIn. If you haven't done so, please like my YouTube and share them, subscribe so you would receive notification when I upload and connect with me on Facebook and Instagram. So what is other comprehensive income? So comprehensive income represent what? Represent all changes, all changes in equity during the period except those resulting from investment by owners and distribution by owners. So comprehensive income include everything that affect equity except investment by owners and distribution by owners. So the owners are out of the picture. So the owners are not showing. So the owners, we basically just think of the owners as out of the picture. We don't like the owners. Comprehensive income don't like the owners. Anything to do with the owners. Investment by owners or distribution by owners are not included. So what's included in equity? Revenues, gains, expenses, losses. Obviously revenues increase equity, gains increase equity, expenses reduces equity, and losses reduces equity. Also what's going to be included in comprehensive income, this is the new thing, this is the new things, gains and losses do what? That bypass gains and losses that bypass net income but affect stockholders equity. So we're going to look at new items, new items, new things that bypass net income but affect stockholders equity. So what are those things? I'm going to list them for now, explain them briefly, but you will see them later on. So they will appear later on. For example, this will appear in chapter 17. This will appear, I don't know in what chapter, then we have some pension adjustments that's going to appear in chapter 20. And we're going to have the third taxes that's going to appear here. So many things that will appear here. So here's how it works. We have net income. This is what we learned earlier. If you don't know how to prepare an income statement, go back and view the prior session because we talked about the income statement in depth in this chapter. And once we are done with the income statement, we add to the income statement something called comprehensive income. What is comprehensive income? Comprehensive income include items such as unrealized gains and losses for available for sale securities. So sometime we're going to have investments and available for sale security. So we're going to have investments. So let's talk about how this comes into play. We're going to have investments and those investments will be treated as available for sale, AFS, available for sale. Those available for sale securities, we might have gains on them or losses. Anytime we have gain or losses, those gain or losses don't go on the income statement. We can put them on the income statement. Where do we put them? They are considered other comprehensive income. They are treated as part of the other comprehensive income. Another comprehensive income, I'm just going to abbreviate it's OCI, other comprehensive income. So those items are included in OCI. If we have gains, that's going to increase equity. If we have losses from those securities, it's going to reduce this equity. We're going to have translation gains and losses on foreign currency. We mentioned this briefly earlier. When a company operates overseas, so that's US company operating in Europe or US company operating in Japan or US company operating in South America, what's going to happen? They're going to translate their financial gains and losses and sometimes they're going to have gains, translate their currency into US dollars. Sometimes they're going to have gains. Sometimes they're going to have losses. The gain and the losses don't go on the income statement. Don't go on the income statement. They go on OCI. So they do increase or decrease equity. They either increase or decrease equity, but they don't affect net income. They bypass the income statement plus other items. Those other items, one of them is pension adjustments. That's the only thing I can think of right now. There's a few other things. So comprehensive income is things that we need to that affect equity, but doesn't affect net income. So we put them in this statement that's called or in this item called other comprehensive income. Once again, those are items that bypass net income but affect equity. So they're not income statement accounts. Gains and losses that bypass that income but affect stockholders' equity are referred to as the other comprehensive income, OCI, other comprehensive income. Companies must display the components of other comprehensive income in two ways. So how do we show other comprehensive income as a company? Because we need to show it. How do we show it? We have two ways to show it. So GAAP gives us, whoops, GAAP gives us two ways to show it. We could either show it as a single continuous statement. So this is called the one statement approach or two separate but consecutive statements of net income and other comprehensive income. And the best way to do is to look at an example. This is one statement approach. Notice this is the income statement right here. Then after the income statement, here we have other comprehensive income, unrealized holding gain. We have some gains and they are reported net of tax, by the way, of 30,000. So comprehensive income is net income plus this 30,000. So comprehensive income is net income plus items that bypass net income. What is the advantage of the one statement approach? It does not require the creation of a new financial statement. The disadvantage, it buries net income as a subtotal, because net income is important. Now net income in the middle, you want it to be at the end. Because net income is also called the bottom line. So if it's really called the bottom line, it should be the last number. So this is the disadvantage of the one statement approach. Or we could have two statements, one statement, two statements. So we could prepare net income and show it as net income. Then prepare the comprehensive income statement. The comprehensive income statement will start with net income, because it includes everything, revenues, expenses, gains, and losses. Then we'll add to it the gain. Here we have a gain holding gain. Another statement, it's something called the statement of stockholders' equity. Report the changes in stockholders' equity and account for total equity for the period. Following items are disclosed in the statement. So what should show in the stockholders' equity? The issuance of shares and the distribution of dividend to owners, because it affects equity, affects stockholders' equity. Reconciliation of the carrying amount of each component from the beginning till the end of the period. So we need to show the beginning balances and the ending balances of the accounts that affect equity. So let's take a look at stockholders' equity. Notice here this is the name of the company, the name of the statement, and the date. So we have a column for common stock, column for accumulated other comprehensive income, column for retained earning, and a total. So let's start with the beginning balance. The beginning balance of retained earning was 50. The beginning balance of other comprehensive income 60. And the beginning balance of common stock is 300. Other comprehensive income, well then what we did is we had a net income, net income effect, effect retained earnings. So net income went up and we didn't have dividends. So retained earning, beginning balance plus net income gives us the ending balance of 160. So this is the beginning balance and this is the ending balance. Comprehensive income, accumulated other comprehensive income was 60. In this period we had 30. So the total is 90. Common stock 300 and 300, there was no change. Basically we add the cross to see the total. Then the ending balance is 550, which is 410 plus 110 plus 30 is 550. So this is a statement of stockholders' equity. Showing the beginning balances as well as the ending balances. Now the other thing I want you to basically remember that accumulated other comprehensive income. So other comprehensive income is where we park things, but it's accumulative. So we have an accumulated other comprehensive income. It was 60. Now it was 30. So accumulated other comprehensive income is an equity account. It's an equity. And if it's an equity account, it means it goes on the balance sheet. So other comprehensive income, it goes on the balance sheet under stockholders' equity. We have common stock, we have retained earning, and we have accumulated other comprehensive income. Accumulated means it's a continuous figure. So accumulated other comprehensive income, we don't close it from year to year. The balance stays and it accumulates. So we show the accumulated effect on the balance sheet. This is what we mean by accumulated other comprehensive income. Again, at the end of this recording, I'm going to invite you again to check out my website, farhatlectures.com. And once again, I don't replace your CPA prep courses. I wish I can. I can do it. But I can be that additional vitamin, that supplemental tool that's going to help you propel to pass the exam. Invest in your career. The CPA exam is a lifetime investment. It's 30 to 40 years. Don't shortchange yourself. And if you have any doubt, and check out my LinkedIn recommendation to see how other students used my website for their benefit to pass the exam. Good luck. Stay safe and study hard.