Accumulated other comprehensive income is a general ledger account that is classified within the equity section of the balance sheet. It is used to accumulate unrealized gains and unrealized losses on those line items in the income statement that are classified within the other comprehensive income category. A transaction is unrealized when it has not yet been settled. Thus, if you invest in a bond, you would record any gain or loss in its fair value in other comprehensive income until the bond is sold, at which time the gain or loss would be realized.
The unrealized gains and losses that may be aggregated into the accumulated other comprehensive income account include:
- Unrealized holding gains or losses on investments that are classified as available for sale
- Foreign currency translation gains or losses
- Pension plan gains or losses
- Pension prior service costs or credits
Once a gain or loss is realized, it is shifted out of the accumulated other comprehensive income account, and instead appears within the line items that summarize into net income. Thus, the realization of a gain or loss effectively shifts the related amount from the accumulated other comprehensive income account to the retained earnings account.
An example of the presentation of accumulated other comprehensive income within the equity section of the balance sheet is:
|Common stock, $0.01 par value, 100,000 shares authorized, 52,000 shares issued||$500,000|
|Additional paid-in capital||200,000|
|Accumulated other comprehensive income:|
|Net unrealized loss on available-for-sale securities||(50,000)|
|Unrealized loss from foreign currency translation||(15,000)|
|Total shareholders' equity||$1,735,000|
While the use of accumulated other comprehensive income is required, a privately-held business that does not issue its financial statements to outside parties may elect to avoid its use. If so, and the entity later chooses to have its financial statements audited, the effects of other comprehensive income should be retroactively made in the audited financial statements.
Nonprofit entities do not use the other comprehensive income concept, so the accumulated other comprehensive income account does not appear in their general ledgers or financial statements.