Since couple of decades ago, balance sheet started to showing a strange snippet on its Equity section called Accumulated Other Comprehensive Income. The snippet has been getting more and more popular although controversies and debates also emerged on the other hand. So, what is Accumulated Other Comprehensive Income, exactly, and why does it exist?

If you have been around with public-owned company for long enough, the snippet is certainly not a new stuff. But for those who haven’t just yet, this could be something new that you need to really understand before it comes its way to your desk.

The snippet is often included in the equity section of a balance sheet, in addition to the two major categories of contributed capital and retained earnings. Two major items—which are both of accounting controversy—in the snippet, are: (a) Foreign currency translation adjustment; and (b) Unrealized gains and losses on available-for-sale securities. These items are gains or losses that bypass the income statement when they are recognized. In this post I would like to discuss what “Accumulated Other Comprehensive Income” exactly is, why it exists in the balance sheet, and what foreign currency translation adjustment and unrealized gains and losses on available-for-sale securities are. Read on…