Other comprehensive Income Account and Accumulated other comprehensive Account

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H.R.Sampath Kumar (Querist)
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06 February 2023
1) Is Statement of Comprehensive Income also an Account like P&L Account found in the General ledger which is debited or credited by means of closing/transfer Journal Entries for preparation of Annual statement of Accounts. I realise that P & L shown shown to the world ouside is the replica of the Ledger Account of the business Entity for all practical purposes. To elaborate, I wish to say as under.

1) P &L Account is debited and expense accounts are credited; income accounts are debited and P & L Account is credited in order to close the Income and expense accounts in the normal course, by means of a closing Journal entry, as a year end exercise. These are normally called Temporary Acounts. Permanent Accounts are not closed as they are carried forward year after year for being shown in the Balance sheet. For Example, Different type of Reserves, credit balance of P & L Account, Share Premium account.etc.
What JE is passed to close OCI Account? How AOCI account is reflected in balance sheet?
Is it the closing balan ce of AOCI Account that is shown in Balance sheet or different accounts entering the AOCI Accounts?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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09 July 2024 In accounting, the Statement of Comprehensive Income (OCI) and Accumulated Other Comprehensive Income (AOCI) are crucial components that reflect certain gains and losses that are not included in the income statement (P&L) but affect equity. Here’s how they are typically handled:

1. **Statement of Comprehensive Income (OCI)**: OCI includes items that bypass the income statement because they are not realized or do not meet certain criteria for recognition in the P&L. These items include unrealized gains or losses on available-for-sale securities, foreign currency translation adjustments, and certain pension adjustments.

- **Closing OCI Accounts**: At the end of the accounting period, OCI accounts are closed using journal entries to transfer their balances to Accumulated OCI (AOCI). The journal entry to close OCI accounts varies depending on the specific items within OCI, but generally, it involves debiting OCI accounts and crediting AOCI.

2. **Accumulated Other Comprehensive Income (AOCI)**: AOCI represents the cumulative amount of OCI items that have been recognized in previous periods and are now accumulated in equity on the balance sheet.

- **Balance Sheet Presentation**: AOCI is presented in the equity section of the balance sheet, separate from retained earnings. It includes items such as unrealized gains or losses on available-for-sale securities and foreign currency translation adjustments that have not yet been realized.

- **Impact on Balance Sheet**: The balance shown in AOCI on the balance sheet represents the net cumulative amount of OCI items. For example, if there were unrealized gains on available-for-sale securities in previous periods, the net amount of these gains would be shown in AOCI.

- **Changes in AOCI**: Changes in AOCI due to new OCI items in the current period are typically disclosed in the statement of changes in equity. These changes do not flow through the income statement but directly impact equity.

**Closing Entries Example**:
- To close OCI accounts, suppose you have unrealized gains on available-for-sale securities in OCI:
- Debit OCI account (e.g., Unrealized Gain on Securities) to transfer the balance out.
- Credit AOCI account (e.g., Accumulated OCI - Unrealized Gain on Securities) to accumulate the balance in equity.

**Conclusion**:
OCI and AOCI play significant roles in reflecting comprehensive income items that impact equity but are not included in the income statement. The closing process involves transferring balances from OCI to AOCI at the end of each reporting period to accurately reflect the cumulative impact of these items on the company's financial position in the balance sheet.