Sunday, August 2, 2009

accounting for issuing common stock

when common shares are issued for cash, the standard journal entry for the issuance of common or preferred shares is :
Dr cash......... cash received
Cr common shares ........par value of shares issued
Cr Additional paid-in capital-common shares.... balancing amount
this will be the basic journal entry for all our share transactions,including preferred shares. In the case of preferred shares, we simply change the "common shares" account to 'preferred shares'. it does not matter if the shares are sold at a price above or below the current market price for shares. we will debit cash for the amount of cash received and divide this amount between common shares and APIC. the only amount that will ever go into the common shares account is the par value of te stock. Again, it does not matter if the sales price is above or below the fair market value of the shares. issuance of shares for something other than cash

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