How to Report Stocks Directly in Financial Statements

by Bryan Keythman

When your company issues stock to investors, such as preferred stock and common stock, you report the amount of the stock in the stockholders’ equity section of your balance sheet -- the financial statement that shows your company’s financial position. The total amount of each stock consists of its par value and its additional paid-in capital. Par value is the legal capital of the stock that can’t be distributed as dividends. Additional paid-in capital is the difference between the money raised from the stock issuance and the par value of the stock.

Determine from your accounting records the par value of preferred and common stock and the par value per share of preferred and common stock. For example, assume the par value of preferred stock is $500,000 with a par value per share of $50. Assume the par value of common stock is $50,000 with a par value per share of $1.

Determine from your records the additional paid-in capital of preferred and common stock. In this example, assume that additional paid-in capital of common stock is $950,000. Assume preferred stock has no additional paid-in capital.

Determine from your records the number of shares authorized, issued and outstanding of each stock. Authorized shares are the shares you can legally issue to investors. Issued shares are shares you have sold to investors, including shares you have repurchased. Outstanding shares are the shares that investors currently own, excluding shares you have repurchased. In this example, assume preferred stock has 10,000 shares authorized, issued and outstanding. Assume common stock has 500,000 shares authorized and 50,000 shares issued and outstanding.

Write “Preferred Stock” as well as the par value per share and the number of shares authorized, issued and outstanding on the first line of the stockholders’ equity section. Write the amount of par value of preferred stock to the right of the description. In this example, write “Preferred stock, $50 par value, 10,000 shares authorized, issued and outstanding $500,000.”

Write “Common Stock” as well as the par value per share and the number of shares authorized, issued and outstanding on the second line of the stockholders’ equity section. Write the amount of par value of common stock to the right of the description. In this example, write “Common Stock, $1 par value, 500,000 shares authorized, 50,000 shares issued and outstanding $50,000.”

Write “Additional Paid-in Capital -- Preferred Stock” on the third line of the section and its amount, if preferred stock has additional paid-in capital. Write “Additional Paid-in Capital -- Common Stock” on the fourth line of the section and its amount. Continuing the example, preferred stock has no additional paid-in capital, so write “Additional Paid-in Capital -- Common Stock $950,000” on the third line of the stockholders’ equity section.