Learn accounting for common stock issuance. Examples of common stock issued for cash and for non-cash consideration with journal entries are provided.

1. Issuing common stock for cash

Accounting for the issuance of common stock for cash is different for par value and no-par value common stock.

Par value stock is the capital stock that has been assigned a value per share (i.e., par value).

The par value is selected by the corporation. Usually companies assign small par values because state taxes could be based on the par value of the common stock. Also, the original purchaser of the common stock can be personally liable for the difference between the issuance price and the par value (i.e., issuance of common stock below par); as the result, companies often establish a par value below the market value.

Par value stock serves to protect corporate creditors: it is the legal capital that must be retained in the business (i.e., it’s not available for withdrawal by shareholders). Legal capital cannot be used unless the corporation is liquidated. For par value stock, par value is the legal capital per share.

No-par value stock is the capital stock that has not been assigned a value per share by the corporation.

However, in many states (in the USA) the board of directors is authorized to assign a stated value to the no-par value stock: in this case the stated value represents the legal capital per share. Some states levy a high tax on no-par value stock. Also, state regulation might require a company to assign a stated value to its no-par stock.

Usually, neither the par value nor the stated value represents the stock market value.

Accounting for the issuance of common stock for cash is straightforward: it affects paid-in capital accounts (i.e., common stock, paid-in capital in excess of par value or paid-in capital in excess of stated value) and a cash account.

Issuance of par-value common stock for cash:

1. Debit Cash account for the amount of proceeds received from the issuance of common stock.
2. Credit Common Stock account for the par value of the common stock issued (i.e., par value x number of shares issued).
3. Credit Paid-in Capital in Excess of Par Value for the amount of proceeds received above the par value (i.e., Cash – Common Stock; (sales price – par value) x number of shares issued).

Issuance of no-par value common stock for cash:

1. Stated Value: journal entries similar to the par-value common stock
   1. Debit Cash account for the amount of proceeds from the issuance of common stock.
   2. Credit Common Stock account for the stated value of the common stock issued (i.e., stated value x number of shares issued).
   3. Credit Paid-in Capital in Excess of Stated Value for the amount of proceeds above stated value (i.e., Cash – Common Stock; (sales price – stated value) x number of shares issued).
2. No Stated Value:
   1. Debit Cash account for the amount of proceeds from the issuance of common stock
   2. Credit Common Stock account for the amount of proceeds from the issuance of common stock

Cost of registering and issuing common stock are usually deducted from the proceeds: reduce Cash and Paid-in Capital in Excess of Par Value (Stated Value).

To control unissued stock, companies might establish control accounts.

When the issuance of common stock is authorized, a company would make the following journal entry:

When the common stock is issued, the company would make the following journal entry:

Authorized Common Stock – Unissued Common Stock = Issued Common Stock

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