Question of the day
2026-09-09
Accounting
Which items in Accumulated OCI eventually get 'recycled' into net income, and when?
Answer it out loud first — like you would in the room. Then check yourself:
Reveal the model answer
Model answer
Under US GAAP, AOCI items are generally reclassified (recycled) into net income when realized
- CTA — released into the gain/loss on sale when the foreign operation is sold or substantially liquidated
- unrealized gains/losses on available-for-sale DEBT securities — recycled when the security is sold (or impaired)
- cash flow hedge gains/losses — reclassified when the hedged transaction affects earnings (e.g. the forecasted purchase hits COGS)
- pension actuarial gains/losses and prior service costs — amortized gradually into pension cost (corridor method). Contrast IFRS, where some items are NEVER recycled: PP&E revaluation surplus, remeasurements of defined-benefit plans, and equity investments designated FVOCI. Why it matters: recycling means a divestiture's reported gain can be swollen or crushed by years of accumulated FX or hedge results that never touched earnings before.
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