How to Adjust Entries in Stock Issuance

Issuing shares of stock raises money for your business.

A company issues stock to raise money for its business. Investors give a company cash in exchange for shares of stock, which represent ownership in the company. If your company issues stock, you can create a journal entry in your accounting records to record the transaction. The journal entry adjusts the value of your stockholders' equity and your assets by the amount of cash you receive form the stock issuance. For example, a stock issuance of $10,000 increases both your assets and stockholders' equity by $10,000.

Instructions

1. Determine the price per share at which you sold the stock, the number of shares you sold and the par value per share of stock. Par value is a minimal accounting value, such as one cent, that a company uses for accounting records. It has little economic value. For example, assume your company issued 10,000 shares of stock with a par value of 1 cent per share at a price of $10 per share.

2. Multiply the number of shares issued by the price per share to calculate the total money received from the issuance. Then multiply the number of shares issued by the par value per share to calculate the par value of the issuance. In the example, multiply 10,000 by $10 to get $100,000 in money received from the issuance. Then multiply 10,000 by 1 cent to get a $100 par value. (See References 1, Page 1)

3. To calculate your additional paid-in capital, subtract the par value of the issuance from the money received This is the amount you received for the stock above par value. In the example, subtract $100 from $100,000 to get $99,900 in additional paid-in capital. (See References 1, Page 1)

4. Write the date of the stock issuance in the date column of your accounting journal to designate a new journal entry.

5. Write "Cash" in the accounts column on the first line of the entry and the amount of cash received from the stock issuance in the debit column. The amount in the debit column increases your cash account, which is an asset. In the example, write "cash" in the accounts column and "$100,000" in the debit column.

6. Write "Common Stock" with an indent in the accounts column on the second line of the entry and the amount of the par value of the stock in the credit column. The amount in the credit column increases the common stock account, which is a stockholders' equity account. In the example, write "Common Stock" in the accounts column and "$100" in the credit column.

7. Write "Additional Paid-in Capital" with an indent in the accounts column on the third line of the entry and its amount in the credit column. The credit amount increases additional paid-in capital, which is a stockholders' equity account. In the example, write "Additional Paid-in Capital" in the accounts column and "$99,900" in the credit column.

8. Write a description of the entry in the accounts column on the fourth line of the entry. In the example, write "Issued 10,000 shares of stock with 1 cent par value at $10 per share."

References

• Babson College: Issuance of Common Stock Example
• CliffsNotes: Stock Terminology
• CliffsNotes: Accounting for Stock Transactions