we're going to talk about accumulated other comprehensive income.
Now, other comprehensive income is a very difficult topic for a lot of people.
that the other comprehensive income shouldn't even exist.
It should just all be part of net income.
other comprehensive income in the financial statements.
they've been reluctant to make any measure that could legitimize it.
explain when you would use other comprehensive income.
other comprehensive income becomes the reconciling item between the two.
effect net income and sometimes they are not.
less stay there until they're offset in the future.
Let's take a look at a couple of different instances of that.
So, here's some examples of items that go into accumulated other comprehensive income.
plan assets both went into accumulated other comprehensive income.
The expectation frankly in both of those is that they will never recycle out of there.
accumulated other comprehensive income into income expense.
Those will be an example of recycling.
debt investments if they recognize at fair value through other comprehensive income.
Again, those amounts are not always expected to recycle.
we talked about this in the first part of this course.
There's changes in the fair value of derivatives and cash flow hedges.
when the hedge transaction affects net income.
a functional currency and hedging gains and losses.
Now, those last ones generally do not recycle either.
other comprehensive income is net of tax.
accumulated other comprehensive income at the end of the accounting period.
And again, accumulated other comprehensive income is a component of equity.
he same as warrants and options.
but some amounts do reclassify out of OCI.
recognized in OCI and these are referred to as reclassification entries.
into net income, through another entry to OCI.
a hard time getting their head around. Let's look through it.
OCI and are not a direct debit or credit to AOCI.
be accessed by entries through other comprehensive income.
a debt instrument that it accounts for as fair value through other comprehensive income.
It was purchased on October first for $100.
That's a fairly common type of entry.
So, here's our journal entries in year one.
and the fair value at 12/31 is $120.
OCI debt instrument for $20 to record the increase in the fair value of the instrument.
And we'll credit an OCI gain.
and an OCI gain of $15 net of tax.
the end of the year into accumulated other comprehensive income.
it's a temporary account, and credit accumulated other comprehensive income.
I've now recognized this an equity net of tax.
So, let's look at the entries in year two.
we paid $100 for it.
We've sold it for $110.
the accounts in order to determine the gain or loss in the sale.
Well, one of them is going to be the fair value at OCI account and that's said, $120.
I'm selling it at $110.
Now, what I did though is I wrote that investment up through OCI.
accumulated other comprehensive income of $15 attributable to this investment.
and then I'm going to call the deferred tax amount for $5 as well.
Now, I'm left with a gain on the sale of $10.
I sold it for $110, I gain $10.
reclassifying the entry out of other comprehensive income.
In year one, I recognized the $15 net gain in comprehensive income.
the bottom line is a loss of five dollars in year two.
and formerly known as reclassification.
the end of the year and that will clear the amount out of AOCI.
it wouldn't show up in the statement of comprehensive income.
So, AOCI is kind of a complicated topic.
you're going to recognize again it was potentially three times.
the amount out of OCI and recognize it in net income.
at which point you're done with it.
and amortized cost which is a solution that is desired by many analysts and others.
It's complicated, there's not much we're going to be able to do about that.
AOCI and OCI seemed to be here to stay.
this accounting to continue for the foreseeable future. Thank you.