In financial reporting, there are two main performance measures: net income and comprehensive income. ASC 220, Comprehensive Income, covers the reporting, presentation, and disclosure of comprehensive income. This important guidance helps entities ensure that they are providing a clear picture of their overall financial performance. In this blog post, we will discuss the definition of comprehensive income and some of its key components.
What is GAAP?
GAAP is a common set of accounting principles, standards, and procedures. Public companies in the United States must follow GAAP when they compile their financial statements. To that end, the Financial Accounting Standards Board (FASB) maintains GAAP. Moreover, the board issues new rules as necessary to ensure that GAAP remains up-to-date.
Where Can I Research GAAP?
FASB provides free online access to the Accounting Standards Codification, which is the only authoritative source for US GAAP. FASB and the AICPA also provide access to other authoritative literature that supplements the GAAP Hierarchy.
To access the Accounting Standards Codification, visit asc.fasb.org. Anyone can access the codes using a basic account. For more advanced features you can set up a professional account. To that end, if you work at a company subject to GAAP rules, your company likely has a professional account.
What is ASC 220?
ASC 220 is a set of guidelines that public companies in the United States must follow when compiling their financial statements. The guidelines cover the basics of reporting comprehensive income.
- 220-10 provides an overview of disclosing comprehensive income
- 220-20 provides additional detail on the treatment of unusual or infrequently occurring items
- 220-30 provides guidance on the treatment of business interruption insurance
What is Comprehensive Income?
Comprehensive income is a measure of financial performance that includes all forms of income and gains, both realized and unrealized. This contrasts with net income, which only includes realized income and gains. In other words, comprehensive income is a more inclusive measure of financial performance than net income.
Why Does It Matter?
The presentation and disclosure of financial statements can have a major impact on the decisions made by users of those statements. For example, if a company or individual is considering investing in another company, the investor will want to know the total income of that company and how it may impact future returns.
ASC 220 follows the framework set by ASC 205 and requires companies to adequately disclose all components of their income. This section specifically requires a comprehensive disclosure on anything impacting your income. To that end, the more complex your business, the more disclosures the codes require.
This section ensures that investors have enough information to make informed decisions and that companies cant mask their performance.
In financial reporting, there are two main performance measures: net income and comprehensive income. ASC 220, Comprehensive Income, covers the reporting, presentation, and disclosure of comprehensive income. This important guidance helps entities ensure that they are providing a clear picture of their overall financial performance. In this blog post, we discussed the definition of comprehensive income and some of its key components.
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