Accounting Income vs. Economic Income
Accounting Income Definition
Maximizing Your Bottom Line In 3 Simple Steps
Net Profit Margin Analysis
Define Comprehensive Income
Define Comprehensive Income as the overall change in wealth for a company during a period. This includes not only the growth through income and size but also reflects equity changes among the firm as well as market conditions that arise. All of this information is generally summarized on the comprehensive income statement.
This type of accounting was established to try and gauge a company better because it is left out of the calculation of net income. This was done because the items in comprehensive income do little to gauge the economic performance of the company. However, this type of income and net income differ in that the comprehensive income effects the assets and liabilities that are reported on the balance sheet.
Comprehensive Income Formula
Use the following comprehensive income formula:
Gross Profit Margin (Revenue – COGS)
– Operating Expenses
(+/-) Other Income items
(+/-) Discontinued Operations (add if savings, subtract if loss)
Comprehensive Income Example
For example, Casa entertainment is a company that provides VHS, DVD, TVs, as well as speaker system products to it’s customers. The company invest in securities on the side. They recently discontinued its VHS operation due to the fact that it has become unprofitable. Finally, the company asked Annie an accountant to calculate the comprehensive income given the following information for Casa Entertainment:
Gross Profit = $20 million
Operating expenses = $5 million
Other Income (Profit in Security Investments)= $2 million
Discontinued Operations (Savings from disposal of VHS operations) = $1 million
Thus using this equation above comes out to $18 million dollars.
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