Other Comprehensive Income (OCI) encompasses all changes in equity during a reporting period except those resulting from investments by owners and distributions to owners. It contains specific types of gains and losses that are excluded from net income and are reported separately in the equity section of the Balance Sheet. Examples include unrealized gains or losses on available-for-sale securities, foreign currency translation adjustments, and certain changes in pension obligations.
Here’s an example of OCI in a financial context: A company holding an investment in an available-for-sale security would record any unrealized gain caused by an increase in market value in the OCI section until the investment is sold. This reflects the economic reality while keeping the net income unaffected. OCI is meaningful as it provides additional insights into the performance and financial condition of an entity, expanding the understanding beyond the usual profit metrics and net income.
In summary, OCI serves as a vital component of an organization's comprehensive earning reporting, ensuring critical aspects impacting an entity's valuation are transparently reported and visible for users of financial statements.