Accumulated Other Comprehensive Income (AOCI)

Unrealized gains and losses presented as a separate component within the equity section of the balance sheet

Author: Himanshu Singh
Himanshu Singh
Himanshu Singh
Investment Banking | Private Equity

Prior to joining UBS as an Investment Banker, Himanshu worked as an Investment Associate for Exin Capital Partners Limited, participating in all aspects of the investment process, including identifying new investment opportunities, detailed due diligence, financial modeling & LBO valuation and presenting investment recommendations internally.

Himanshu holds an MBA in Finance from the Indian Institute of Management and a Bachelor of Engineering from Netaji Subhas Institute of Technology.

Reviewed By: Andy Yan
Andy Yan
Andy Yan
Investment Banking | Corporate Development

Before deciding to pursue his MBA, Andy previously spent two years at Credit Suisse in Investment Banking, primarily working on M&A and IPO transactions. Prior to joining Credit Suisse, Andy was a Business Analyst Intern for Capital One and worked as an associate for Cambridge Realty Capital Companies.

Andy graduated from University of Chicago with a Bachelor of Arts in Economics and Statistics and is currently an MBA candidate at The University of Chicago Booth School of Business with a concentration in Analytical Finance.

Last Updated:September 28, 2023

What is Accumulated Other Comprehensive Income (AOCI)?

Accumulated other comprehensive income (AOCI) represents unrealized gains and losses and is typically presented as a separate component within the equity section of the balance sheet.

The amount shown on the statement of comprehensive income for each period represents the net cumulative amount of items classified as other comprehensive income, which effectively shifts the related amount from the accumulated other comprehensive income account to the retained earnings account.

A statement of comprehensive income is a financial statement that presents items affecting a company's equity but not included in the income statement, such as foreign currency transactions and hedging instruments.

Gains and losses on specific investment categories, pension schemes, and hedging trades can be classified as other comprehensive income and are typically reported separately due to being unrealized until realized. They are not immediately included in net income.

Key Takeaways

  • Accumulated Other Comprehensive Income (AOCI) represents unrealized gains and losses and is typically presented within the equity section of the balance sheet.
  • AOCI represents the cumulative net amount of items classified as other comprehensive income, shifting them from the AOCI account to retained earnings on the income statement.
  • Items such as gains and losses on investments, pension schemes, and hedging trades are classified as Accumulated Other Comprehensive Income and are reported separately until realized. They don't immediately impact net income.
  • AOCI provides insights into potential future impacts on net income, helping stakeholders anticipate potential surprises in profitability.
  • When gains or losses are realized, they are transferred from the AOCI account to retained earnings, affecting the income statement's line items.

Breaking Down an AOCI Account

Suppose a business invests in the stock market, for example. In that case, the open gains or losses on those assets are appropriately recorded in the other comprehensive income portion of the balance sheet until the stocks are sold. At this point, the profits or losses are realized. 

Hence, an investor can gain insights into potential future impacts on net income by examining accumulated other comprehensive income information, which reflects unrealized gains and losses. 

A gain or loss that has been realized is recorded in the income statement as part of the line items that contribute to net income.

As a result, when a gain or loss is realized, the corresponding amount is effectively transferred from the accumulated other comprehensive income account to the retained earnings account.

Ultimately, accumulated other comprehensive income provides insights into potential future income statement impacts, which may help stakeholders anticipate but not entirely eliminate the possibility of significant profits or losses being surprising.

Contents of Accumulated Other Comprehensive Income

The Accumulated Other Comprehensive Income (AOCI) section on a company's balance sheet may include various components, such as:

  • Unrealized Gains and Losses on Available-for-Sale Securities
  • Foreign Currency Translation Adjustments
  • Pension Benefit Obligations
  • Derivative Instruments
  • Revaluation Surpluses
  • Minimum Pension Liability Adjustments
  • Other Comprehensive Income Items that do not flow through the income statement but affect the company's overall comprehensive income

Example of Accumulated Other Comprehensive Income

Here is an illustration of how accumulated other comprehensive income is displayed in the equity segment of the balance sheet:

AOCI Example
ABC Corporation - Balance Sheet
Assets Amount
Current Assets xxx
Non-Current Assets xxx
Liabilities Amount
Current Liabilities xxx
Non-Current Liabilities xxx
Equity Amount
Common Stock xxx
Retained Earnings xxx
Accumulated Other Comprehensive Income xxx
1. Unrealized Gains/ Losses on Available-for-Sale Securities xxx
2. Foreign Currency Translation Adjustments xxx
3. Pension Benefit Obligations xxx
4. Derivative Instruments xxx
5. Revaluation Surpluses xxx
6. Minimum Pension Liability Adjustments xxx
7. Other Comprehensive Income Items xxx

Regulations Surrounding AOCI Accounts

Once recognized, a profit or loss is transferred from the AOCI account into the income statement. The usage of AOCI accounts is not limited to publicly traded corporations, and privately held businesses and non-profit organizations can also use them if applicable.

However, a company is not required to use AOCI accounts if financial statements do not have to be provided to third parties.

In 1997, the Financial Accounting Standards Board (FASB) published a new standard that mandated a thorough accounting of all income, including "other" or unique sources of income, notably profits and losses that were not yet established. 

The decision mandated that AOCI accounts for all US publicly traded corporations.

It is crucial to accurately and completely report Accumulated Other Comprehensive Income accounts on a balance sheet since the profits and losses impact the company's comprehensive income and the balance sheet as a whole. 

However, until the transactions are finished and transferred to a different area of the balance sheet, the items have no impact on:

  • Net income
  • Retained profits
  • The income statement regarding real finalized income

Reviewed and edited by James Fazeli-Sinaki | LinkedIn

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