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When changes in the value of foreign currency cause the assets of a company to increase in value, the result will be an increase in the stockholders’ equity (picture the accounting equation increasing on the left side as well as on the right side). Because the change in value of the foreign currency is not related to the company’s operations, the increase in stockholders’ equity cannot be reported as net income. However, the increase in stockholders’ equity is reported as comprehensive income.

Unrealized Gains and Losses on Available-for-Sale Securities

Companies that own investments in marketable securities (bonds and stocks) will see the market values of their investments increase and/or decrease over time. If that investment is classified as “available for sale” (meaning that the company does not intend to sell but could if necessary, as contrasted with “trading” investments not intended to be held a long time), then the investment must be included in the balance sheet at its market value. If that market value is greater than the cost of the investment, there is an unrealized holding gain. But the gain in value is not related to the company’s operations and the company is in the same situation as for the foreign currency change discussed above: an increase in asset value that
must be balanced with an increase in stockholders’ equity that cannot be reported as net income.Therefore, it is comprehensive income.