Other Comprehensive Income (OCI) refers to any revenues, expenses, and gains / (losses) that not have yet been realized. These items, such as a company’s unrealized gains on its investments, are not recognized on the income statement and do not impact net income.
The “Other Comprehensive Income (OCI)” line item is recorded on the shareholders’ equity section of the balance sheet and consists of a company’s unrealized revenues, expenses, gains, and losses.
While such items affect a company’s balance sheet, the effect is not captured on the income statement (and has no impact on net income) per GAAP reporting standards.
Once the “paper” gain or loss is realized, it would then appear and affect the company’s income statement and net income.
Further, since net income is unaffected by OCI, neither is the retained earnings account on the balance sheet.
A “gain” would cause the OCI account to increase (credit), while a “loss” would cause the OCI account to decrease (debit).
The most common examples of items included in OCI are the following:
For instance, suppose a company has a portfolio of bonds and the value of those debt securities has changed.
The difference would be recognized as either a gain or loss in the OCI line item of the balance sheet.
Why? The gain or loss has not been realized yet, so there will be no income statement or net income impact.
However, once the bond investment has been sold — i.e. the gain or loss has now been “realized” — the difference would be recognized on the income statement in the non-operating income / (expenses) section.
The screenshot below of Amazon’s balance sheet for the fiscal year ending 2021 shows an example of other comprehensive income (OCI).
Rather than “Other Comprehensive Income (OCI)”, Amazon records the line item as “Accumulated other comprehensive income (loss)”, which is also common as the two terms are interchangeable.
Amazon OCI Example (Source: 10-K)
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