How to Record an S Corporation Stock Sale

Recording an S corporation stock sale requires a basic understanding of accounting and investments.

An S corporation is a common way that small businesses incorporate themselves. Incorporation as an S corporation shields the private assets of corporation owners from liability should a lawsuit be brought against the corporation or should the corporation declare bankruptcy. S corporations are not taxed on income and losses since the individual owners include income and losses on their individual tax returns. Since S corporations can issue only common stock, recording of stock sales must follow accounting rules for sale of common stock.

Things You'll Need

• General accounting journal
• Common stock

Instructions

1. Issue common stock. An S corporation may issue common stock to get cash. For example, the Blue Pool Company needs $10,000 cash for a new line of pool filters it wants to market. It decides to issue 1,000 shares of common stock at the par value price of $10 each.

2. Record the stock sale. The accountant records the common stock sale in a general ledger by debiting cash and increasing credit by $10,000 each. A general ledger is an electronic or paper journal where the corporation keeps a chronological record of business transactions and account activity. The general ledger or journal can be filled out as follows:

   Enter date in far-left column; enter "cash" on the first line under "account title and description"; enter "common stock" on the next line; and then enter "sale of stock" on third line" of that column. Next, enter "10,000" in the column marked "debit" on the same line as "cash" has been entered. Finally, enter "10,000" in the far right column which should be marked "credit" and on the same line as "common stock" has been entered in the "account title and description column."

3. Record the stock's par value. A stock's par value is its face value, or what the stock is sold for. If a par value is not issued for the common stock, but a value of the stock has been declared by the corporation's board of directors, that stated value can be treated as the par value for accounting purposes and recorded in the manner described above. If no par value is determined for the corporation's sale of common stock, simply record the amount received for the stock in the "credit" column of the general ledger book for that common stock account.

References

• Entrepreneur: S Corporation Basics
• Cliff Notes: Accounting for Stock Transactions
• Article Base: How to Sell Common Stock