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Paid-in capital is value a company receives from owners in exchange for equity interests. It records owner contributions—not profit earned by selling goods or services. In a U.S. common-stock example, the amount paid above a share’s par value is recorded as additional paid-in capital (APIC), while the par-value amount is recorded separately as common stock.
What paid-in capital means
Paid-in capital describes capital contributed by owners in connection with issuing equity. It appears within shareholders’ equity on the balance sheet, which presents a company’s assets, liabilities, and equity at a particular point in time. The SEC’s small-business glossary explains shareholders’ equity as what would remain for shareholders if a company sold its assets and paid its liabilities.
Because it comes from owners’ contributions, paid-in capital is not the same as operating income or retained earnings. A company may receive paid-in capital when it issues shares, but that contribution is not revenue from its business operations.
How additional paid-in capital is calculated
For common stock, the SEC Office of the Advocate for Small Business Capital Formation defines additional paid-in capital as the number of common shares issued multiplied by the sale price per share minus par value per share. In formula form:
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APIC = shares issued × (sale price per share − par value per share)
Par value is a stated amount associated with a share. Under this calculation, the portion of the issue price equal to par value is assigned to common stock; the amount paid above par is APIC.
Example: 1,000 shares issued for $5 each
Suppose a corporation issues 1,000 common shares for $5 each, with a par value of $1 per share. The company receives $5,000 in total. The common-stock amount at par is $1,000 (1,000 × $1); the remaining $4,000 (1,000 × [$5 − $1]) is APIC.
The $5,000 total received is the combined amount in this illustration. APIC is the $4,000 excess over par, not the entire contribution by itself.
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Paid-in capital and APIC: what is the difference?
| Term or amount | What it describes | In the example |
|---|---|---|
| Paid-in or contributed capital | Value received from owners in equity-related transactions; terminology and presentation can vary. | $5,000 total received for the shares. |
| Common stock at par | The portion assigned to common stock using the stated par value per share. | $1,000. |
| Additional paid-in capital (APIC) | For the SEC glossary’s common-stock calculation, the amount received above par. | $4,000. |
Paid-in capital and APIC are closely related, but the terms should not automatically be treated as interchangeable. An SEC-hosted exhibit reproducing the U.S. GAAP taxonomy definition for common-stock APIC lists “contributed capital,” “capital in excess of par,” “capital surplus,” and “paid-in capital” as possible names. That taxonomy definition covers amounts from common-stock-related transactions above par or stated value and other stock-related transactions. The wording reflects a common-stock concept, not a universal rule for every equity account or entity.
Where it appears and how to read it
Look for paid-in capital or APIC within the shareholders’ equity section of a balance sheet. Account names and level of detail may differ between statements. Notes to the financial statements can supply additional context about equity accounts and share issuances; the balance sheet itself is a snapshot, not a record of every transaction’s background.
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For the SEC glossary’s specific common-stock formula, the useful distinction is between the par-value component and the amount paid above par. Do not infer from the label alone that every company uses an identical account title or presentation.
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The calculation above is for additional paid-in capital associated with common stock, as described in the SEC small-business glossary. The SEC-hosted taxonomy excerpt likewise defines a common-stock concept and distinguishes it from preferred-stock transactions. Companies organized in other ways, or reporting under another accounting framework, may use different terminology or classifications; consult the applicable accounting basis and the entity’s financial statements rather than applying this common-stock example universally.
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The SEC glossary says it represents the views of SEC small-business-office staff and has no legal force or effect. It is explanatory material, not a rule or regulation. The taxonomy wording cited here comes from an SEC-hosted filing exhibit reproducing FASB taxonomy text, not a direct FASB Codification page.
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