Accumulated other comprehensive income is NOT considered to be a source of stockholders' equity.

Question

Quizplus · Accepted Answer

Accumulated other comprehensive income (AOCI) is actually considered to be a component of stockholders' equity, contrary to the statement in the input question. AOCI represents a section of equity that reflects the changes in net assets of a company that are not caused by transactions with shareholders (such as issuing or repurchasing stock) or earnings from the normal operations of the company.Other comprehensive income includes revenues, expenses, gains, and losses that, according to the accounting standards, are excluded from net income on the income statement. These items are recorded directly in equity. Examples of items that might be included in other comprehensive income are:
1. Unrealized gains and losses on available-for-sale securities.
2. Foreign currency translation adjustments.
3. Adjustments for minimum pension liabilities.
4. Unrealized gains and losses on certain derivative instruments.
These items are accumulated in the AOCI until they are realized, at which point they are reclassified from AOCI to net income. The AOCI is presented in the equity section of the balance sheet as it represents part of the shareholders' equity that captures the total gains and losses that have not been realized or passed through the income statement.
Therefore, AOCI is indeed a source of stockholders' equity as it contributes to the overall equity of the company, albeit in a way that is separate from retained earnings and additional paid-in capital.

Accumulated Other Comprehensive Income Is NOT Considered to Be a Source