Net Income Vs. Comprehensive Income

Businesses use up economic resources called assets to start up, maintain and run their operations. Assets can be acquired in one of two methods -- either through incurring economic obligations called liabilities to other entities or through receiving them as investments from business owners. This investment is called equity or net assets since assets minus liabilities is equal to equity. Net income is the financial gain or loss that a business has made in one single time period while comprehensive income is the change in equity in that same time period originating in non-owner sources.

Revenues and Expenses

Businesses incur expenses in the course of producing revenues. Expenses are single-period business expenditures that produce benefits for the business in the single time periods of their occurrence. In contrast, revenues are what businesses collect in exchange for providing others with goods and services. Revenues minus expenses is equal to the business's net income or net loss, the business's financial gain or loss from running its operations for the period.

Revenue Recognition

In general, revenues and expenses are recorded on the accounts when the transactions are both realized and collectible. Collectible means that the sums, if owing, can expect to be collected while realized means that the source transaction has been completed. Certain transactions produce unrealized gains and losses that do not appear as either revenues or expenses but are recorded as changes in equity.

Net Income

Net income or net loss is equal to the sum of all revenues in the period minus the sum of all expenses in the period. If revenues exceed expenses, it is a net income and vice versa. Net income and net loss represent the change in the business's financial circumstances because of it running its revenue-producing operations for the period.

Comprehensive Income

Comprehensive income is equal to net income plus other comprehensive income. Other comprehensive income is a catch-all term for changes in equity from non-owner sources, including unrealized gains and losses on investments because of changing market prices, on foreign exchange fluctuations, and the like. Because of the volatile nature of these items, comprehensive income is more susceptible to change than net income.

References

About the Author

Alan Li started writing in 2008 and has seen his work published in newsletters written for the Cecil Street Community Centre in Toronto. He is a graduate of the finance program at the University of Toronto with a Bachelor of Commerce and has additional accreditation from the Canadian Securities Institute.