Final answer:
Reclassification adjustments are included in the financial statements with comprehensive income to prevent double counting when items previously recorded in OCI are realized in net income.
Step-by-step explanation:
Reclassification adjustments are shown in the financial statements that disclose comprehensive income to avoid double counting of certain income or expense items when they are realized in net income after being recognized in other comprehensive income (OCI). Comprehensive income includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners. It encompasses both net income and OCI.
The reason behind showing reclassification adjustments separately is to ensure that items are only included in net income once over the periods that an item is recognized in the financial statements. For example, if a gain or loss previously recognized in OCI due to available-for-sale financial assets is realized upon the sale of those assets, it should be reclassified out of OCI and included in net income. Therefore, the adjustment ensures that these gains or losses are not counted both in OCI and net income.