3 things affect shareholders’ equity

1. Transactions with owners 

• • • Examples: sales of stock, repurchases of stock 

2. Net income

3. Other comprehensive income

The "Other comprehensive income" category includes gains and losses. Normally, gains and losses are included in income, but the FASB felt that some of these items would be misleading to financial statement users if they were included in income. We talked about this in Module 3.

Comprehensive income

• • Comprehensive income = net income + other comprehensive income

Two different methods for reporting comprehensive income

• 1. Combine the statement of comprehensive income with the income statement.

  2. Prepare a separate statement of comprehensive income. 

     • This would be a 5th financial statement (in addition to the balance sheet, income statement, statement of cash flows, and statement of shareholders' equity, which we discussed in Chapter 2).

Accumulated other comprehensive income

Accumulated other comprehensive income is the cumulative total of other comprehensive income. It is a component of shareholders’ equity.

Remember to be careful with the different terminology related to comprehensive income.