A company’s balance sheet reflects its financial position for a specific period, usually over the course of a fiscal quarter or year. A balance sheet is divided into the three main accounts of assets, liabilities and stockholder’s equity. Common stock is recorded in the stockholder’s equity section of a balance sheet.
What is Common Stock on a Balance Sheet?
A balance sheet displays a company’s assets and liabilities. The asset side on the right of the balance sheet displays what the company owns, such as property, equipment, investments, cash and accounts receivable. The left side of the balance sheet displays the company’s debts, which include accounts payable and notes payable The total assets on the right, must equal total liabilities and stockholder’s equity, on the left.
What is Par Value and Stated Value?
In its corporate charter, a company may choose to assign either a par value or stated value for common stock. Both values are arbitrary and typically assigned for accounting purposes only. It is not the same as market value. Companies cannot issue common stock shares for less than its par or stated value. When common stock has an assigned par or stated value, multiply the number of shares outstanding by the par or stated value per share. This amount is recorded as common stock in the shareholder’s equity section of a balance sheet.
Understanding Additional Paid-In Capital
Additional paid-in capital is also referred to as paid-in capital in excess of par on the balance sheet. The additional paid-in capital is the amount of cash received from the sale of stock shares in excess of the par or stated value of the shares. For example, assume a company issues 100 shares with a stated value of $10 per share, and investors purchase all 100 shares at $15 per share. The company’s additional paid-in capital is $5 per share multiplied by 100 shares. The company records $500 in additional paid in capital in the stockholder’s equity section of its balance sheet.
Issuance of Common Stock Journal Entry
As an example, assume a company issues 1,000 common shares with a stated value of $5 per share, and investors purchase all 1,000 shares for $15 per share. The total value of outstanding shares is $15,000. The company records common shares for $5,000 (1,000 shares outstanding x $5 stated value per share) in the shareholder’s equity section on their balance sheet. Each investor paid $10 per share in excess of the stated value, and $10 in excess of par multiplied by 1,000 shares outstanding equals $10,000. The $10,000 additional paid-in capital and the $5,000 stated value added together, equals the total value of shares outstanding of $15,000.
Sue-Lynn Carty has over five years experience as both a freelance writer and editor, and her work has appeared on the websites Work.com and LoveToKnow. Carty holds a Bachelor of Arts degree in business administration, with an emphasis on financial management, from Davenport University.