Correction
Other comprehensive income (OCI) contains certain gains and losses that specific accounting rules exclude from net income. The item's accounting classification decides its route. Whether cash moved, or whether the company sold the asset, is not enough to decide.
Why the mistake can seem reasonable
Some OCI items are holding gains or losses recorded before a sale. That pattern can make not sold yet look like the rule. But depreciation is a noncash expense in net income, and some investments have fair-value changes that also enter net income before a sale.
Compare two security events
Suppose a company holds a debt security classified as available for sale. A fair-value holding gain while it owns the security generally enters OCI. If the company sells the security and recognizes a gain, that sale gain enters net income. An adjustment can then remove a related gain previously included in OCI. The sale does not turn every earlier OCI amount into cash or make unrealized a general OCI test.
For a different investment classification, a fair-value holding gain may enter net income. Read the classification and the rule that applies to the item before deciding which statement line receives the gain or loss.
Quick checkA company records depreciation this year but pays no cash for the asset this year. Does depreciation belong in OCI?
Answer: No. Depreciation is an expense in net income. Its lack of a current cash payment does not change the statement line.
When this mistake may appear
- A company reports a gain before selling the related asset.
- An expense is recorded without a current cash payment.
Your work may contain this mistake if:
- You use the word unrealized as the reason for OCI without checking the accounting classification.
- You put depreciation in OCI because no cash was paid this period.