In the context of accounting, how is equity typically affected by comprehensive income?

Comprehensive income is an essential component of equity in accounting, as it encompasses all changes in equity during a period that are not the result of owner transactions. It includes net income along with other comprehensive income items, such as gains and losses from foreign currency translations, unrealized gains and losses on certain investments, and pension plan adjustments.

When comprehensive income is reported, it can either increase or decrease equity based on the performance of the company and other external factors impacting its finances. For instance, if a company experiences profitable operations that contribute positively to net income and records unrealized gains in its investments, comprehensive income will lead to an increase in equity. Conversely, if the company incurs losses or has negative adjustments in its total comprehensive income, this will decrease equity.

Given this understanding, the correct response to the question is that comprehensive income can indeed increase or decrease equity, as it reflects the overall financial performance and changes that impact shareholders' interests over a reporting period.