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Lesson details
- Estimated study time
- 25 min
Learning objectives (8)
Net income includes most recognized revenues, gains, expenses, and losses for a period. Some gains and losses follow specific rules that put them in other comprehensive income (OCI) instead. Comprehensive income adds the period's OCI to net income. Owner investments and dividends are changes in equity, but neither belongs in comprehensive income.
Decide whether an item enters OCI
The rule for the underlying item makes this decision. Common OCI categories include holding gains and losses on available-for-sale debt securities, translation adjustments for some foreign operations, certain cash-flow-hedge amounts, and certain employee retirement-plan changes. A holding gain on a debt security classified as available for sale usually enters OCI while the company owns it. Another classification may send a holding gain to net income.
Cash timing is not the test. Depreciation enters net income even though it does not require a current cash payment. Nor is unrealized a general OCI rule. Check the item's classification and the applicable accounting guidance before placing it on either line.
Read net income and current OCI together
Sable Ridge Instruments reports $600,000 of net income for 2026. Its available-for-sale debt securities have a $60,000 after-tax holding gain in OCI. It also reports a $30,000 after-tax negative reclassification adjustment related to a security sold during the year. The recognized gain on that sale enters net income. The adjustment removes the related earlier gain from OCI so comprehensive income does not include the same gain twice.
| Sable Ridge, year ended December 31, 2026 | US dollars |
|---|---|
| Net income | $600,000 |
| Holding gain in OCI, after tax | 60,000 |
| Reclassification adjustment, after tax | (30,000) |
| Current-year OCI | 30,000 |
| Comprehensive income | $630,000 |
The example supplies the security classification and tax amounts. Calculating the total does not prove that a different security qualifies for OCI or that its tax effect would be the same. The accounting rule and the company's facts must establish those inputs first.
Keep current OCI separate from AOCI
Accumulated other comprehensive income (AOCI) is the cumulative OCI balance in equity. Sable Ridge begins 2026 with $45,000 of AOCI. Its $30,000 current-year OCI brings ending AOCI to $75,000. Current OCI describes the year's change; ending AOCI includes earlier periods too. AOCI is not cash set aside for the securities.
Net income closes into retained earnings before dividends and other changes. OCI changes AOCI. Both balances appear in equity. A dividend reduces equity but is not an expense or part of comprehensive income.
Quick checkSable Ridge's comprehensive income is $630,000 and ending AOCI is $75,000. Should you add those two amounts to describe 2026 performance?
Answer: No. Comprehensive income already includes the $30,000 of current-year OCI. Ending AOCI is an equity balance that also includes earlier periods. Adding it would mix a period change with a cumulative balance.
The Granite Harbor worked example uses a separate set of supplied facts to follow net income and OCI into ending equity. Its classifications and tax amounts are given for the exercise; the example checks the arithmetic that follows them.