Companies issue stock to raise additional business capital. Companies may choose to raise additional capital for a number of reasons, but typically do so for expansion and acquisition purposes. Companies must calculate stock issuances to not only determine how much capital they are raising but also to enter the sale transaction in their accounting general ledger.
Calculate for Stock Issuances
1. Obtain the number of shares issued and price per share of issued stock. You will find both of these figures on the Statement of Shareholder's Equity.
2. Multiply the number of shares issued by the price per share. Doing this calculation gives you the amount of cash raised by the sale of the stock. For example, if the company issues 100 shares at $10 per share, the result is $1,000 of additional capital raised from stock issuances.
3. Calculate stock issuances for par value. It's rare that a company assigns par value to a stock, but if they are required to by state law, then you would calculate stock issuance by multiplying the par value by the number of shares issued. For example, if a company issues 100 common stocks for a par value of $1, the calculation is 100 x $1 = $100.
Account for Stock Issuances
1. Debit the cash account. To account for the cash inflow from the stock issuance, debit the cash account in the general ledger for the amount received from the stock issuance. For instance, if a company issues 100 shares at $10 per share, the resulting cash inflow is $1,000. You would debit the cash account for $1,000.
2. Credit the Common Stock account. You credit the Common Stock account to reflect the increase in the common stock account. For instance, if a company issues 100 shares at $10 per share, the resulting increase in the common stock account is $1,000. You would credit the common stock account for $1,000.
3. Credit paid in capital in excess of par. You enter this amount only if the company assigned the stock a par value. For example, if a company issues 100 shares at $10 per share, with a par value of $1. The amount of money received from the sale is $1000. You debit cash for $1,000. You debit common stock for the par value which is $1 x 100= $100. You then debit paid in capital in excess of par for the difference between the total cash amount received per share and the par value which is $1000 -$100 = $900.
Items you will need
- Statement of Shareholder's Equity
- Number of shares issued
- Price per share of issued stock
- Par value of stock
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