Rosetta Stone 2010 Annual Report Download - page 92

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Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income (Loss)
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income refers to revenues, expenses, gains, and
losses that are not included in net income, but rather are recorded directly in stockholders' equity. For the years ended December 31, 2010, 2009 and 2008, the
Company's comprehensive income consisted of net income and foreign currency translation gains (losses).
Foreign Currency Translation and Transactions
The functional currency of the Company's foreign subsidiaries is their local currency. Accordingly, assets and liabilities of the foreign subsidiaries are
translated into U.S. dollars at exchange rates in effect on the balance sheet date. Income and expense items are translated at average rates for the period.
Translation adjustments are recorded as a component of other comprehensive income in stockholders' equity.
Cash flows of consolidated foreign subsidiaries, whose functional currency is the local currency, are translated to U.S. dollars using average exchange
rates for the period. The Company reports the effect of exchange rate changes on cash balances held in foreign currencies as a separate item in the
reconciliation of the changes in cash and cash equivalents during the period.
F-18