Issuing common stock is one way a corporation can raise capital for its business operations. The company may sell common stock to investors as a way to acquire cash or other assets needed to run the business. A corporation cannot sell its stock for less than par value, which indicates the minimum selling price per share. For instance, common stock with a par value of $0.50 cannot be sold for less than $0.50 per share. A corporation often sells its stock for more than the stated par value. Recording the issuance of common stock is an important part of creating timely and accurate financial statements.
1. Write the date the company issued common stock in the general journal. The date should indicate the day and month when the issuance of common stock occurred. This makes it easier to accurately transfer information from the general journal to the financial statements.
2. Draft a debit in the cash account. Indicate the amount of cash received as a result of issuing common stock. For instance, a company that sold 1,000 shares of common stock with a par value of $1 for $10 a share receives $10,000 for issuing common stock. In this scenario, the company must record a $10,000 debit to cash to illustrate that the company's cash account has increased.
3. Record a credit entry in the common stock account. Crediting the common stock account indicates the company has issued stock to its investors. Assume a company issued 1,000 shares of $1 par value stock at $10 per share. In this case, record a credit to common stock for $1,000 in the general journal.
4. Credit the additional paid-in capital for the amount paid over par. If a company sold 1,000 shares of $1 par value stock at $10 per share, the additional paid-in capital is $9,000. In this scenario, crediting paid-in capital for $9,000 balances the journal entry so that the credits and debits balance.
Items you will need
- General Journal