FAR, Financial Accounting and Reporting
Sources for Income Statement and Comprehensive Income
Last reviewed
The standards and authorities behind PocketCPA's FAR lessons on Income Statement and Comprehensive Income. The topic rests on ASC 220.
About this topic
Net income does not capture everything that changed the owners' stake during a period.
Some gains and losses are real, measurable, and caused by events of the period, yet reporting them in net income would push volatility into the number readers use to judge operating performance. A pension actuary changes a discount rate. A foreign subsidiary's currency moves against the dollar. A bond the company intends to hold reprices because market rates moved. None of these was caused by anything management did this period in the business itself, and none of them is settled: the pension is decades from being paid, the subsidiary is not being sold, the bond has not matured.
Key points
- Comprehensive income equals net income plus other comprehensive income (OCI), which bypasses the income statement.
- The four OCI components are foreign currency adjustments, unrealized gains/losses on AFS debt securities, pension/OPEB amounts, and effective hedging gains/losses.
- A reclassification adjustment moves a gain or loss from OCI into net income when realized, preventing double counting.
- Operating expenses are classified by function (cost of sales, selling, G&A) under U.S. GAAP, not by nature.
What the lessons cover
- The face of the income statement (ASC 220-10-45)
- What comprehensive income is (ASC 220-10-10-1)
- The components that belong in other comprehensive income (ASC 220-10-45-10A)
- Two permitted presentations (ASC 220-10-45-1B)
- Reclassification adjustments (ASC 220-10-45-17)
- Income tax presentation (ASC 220-10-45-12)
- Accumulated other comprehensive income (ASC 220-10-45-14)
- Unusual or infrequent items (ASC 220-20-45-1)
- Discontinued operations on the face of the statement (ASC 205-20-45-3A)
Authoritative references
Where these requirements sit in the literature.
- ASC 220-10-10-1, the objective of reporting comprehensive income and its definition as the change in equity from non-owner sources.
- ASC 220-10-45-1B, the two permitted presentations.
- ASC 220-10-45-10A, the components reported in other comprehensive income.
- ASC 220-10-45-12, presentation of OCI components net of tax, or before tax with an aggregate tax line.
- ASC 220-10-45-14, accumulated other comprehensive income as a component of equity.
- ASC 220-10-45-14A, reclassifications out of accumulated other comprehensive income.
- ASC 220-10-45-15, presentation of total comprehensive income.
- ASC 220-10-45-17, reclassification adjustments.
- ASC 220-20-45-1, unusual or infrequently occurring items.
- ASC 205-20-45-3A, presentation of discontinued operations.
- Three amendments removed what candidates most often still remember.
- ASU 2011-05 removed the equity-statement presentation.
- ASU 2015-01 removed the extraordinary category.
- ASU 2016-01 removed OCI treatment for equity securities.
- Measurement of the individual OCI components belongs to the Topic that owns each one.
- ASC 320, debt securities.
- ASC 321, equity securities.
- ASC 715, pension and OPEB.
- ASC 815, derivatives and hedging.
- ASC 825, the fair value option.
- ASC 830, foreign currency.
How PocketCPA uses these sources
Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.