Journal Entry for Issuing Common Stock

When a company issues stock, it records the transaction in its journal to reflect the increase in equity and the cash (or other assets) received in exchange for the stock.

How to Record Journal Entry for Issuing Common Stock?

When a company issues stock, it records the transaction in its journal to reflect the increase in equity and the cash (or other assets) received in exchange for the stock. The exact journal entry depends on whether the stock is issued for cash or non-cash consideration and the par value of the stock.

Here are several scenarios for issuing stock and their corresponding journal entries:

1. Issuance of Common Stock for Cash

If the company issues common stock for cash, the entry reflects the cash received and the increase in common stock at par value, with any excess recorded as additional paid-in capital.

Assume:

• Number of shares issued: 1,000
• Par value per share: $1
• Issue price per share: $10

Journal Entry:

Date	Account	Debit	Credit
YYYY-MM-DD	Cash	$10,000
YYYY-MM-DD	Common Stock	$1,000
YYYY-MM-DD	Additional Paid-in Capital		$9,000

Explanation:

• Cash (Debit): Increases by the total amount received ($10,000).
• Common Stock (Credit): Increases by the par value of the issued shares ($1,000).
• Additional Paid-in Capital (Credit): Represents the amount received over the par value ($9,000).

2. Issuance of Common Stock for Non-Cash Assets

If the company issues stock in exchange for non-cash assets (e.g., equipment or services), the transaction is recorded at the fair value of the assets received or the stock issued, whichever is more clearly determinable.

Assume:

• Number of shares issued: 500
• Par value per share: $1
• Fair value of assets received: $7,500

Journal Entry:

Date	Account	Debit	Credit
YYYY-MM-DD	Equipment/Service	$7,500
YYYY-MM-DD	Common Stock	$500
YYYY-MM-DD	Additional Paid-in Capital		$7,000

Explanation:

• Equipment/Service (Debit): Increases by the fair value of the assets received ($7,500).
• Common Stock (Credit): Increases by the par value of the issued shares ($500).
• Additional Paid-in Capital (Credit): Represents the amount received over the par value ($7,000).

3. Issuance of Preferred Stock

Preferred stock is often issued with specific terms, but the general principle is similar to common stock issuance.

Assume:

• Number of shares issued: 200
• Par value per share: $50
• Issue price per share: $60

Journal Entry:

Date	Account	Debit	Credit
YYYY-MM-DD	Cash	$12,000
YYYY-MM-DD	Preferred Stock	$10,000
YYYY-MM-DD	Additional Paid-in Capital		$2,000

Explanation:

• Cash (Debit): Increases by the total amount received ($12,000).
• Preferred Stock (Credit): Increases by the par value of the issued shares ($10,000).
• Additional Paid-in Capital (Credit): Represents the amount received over the par value ($2,000).

4. Stock Issuance Above Par Value with No Additional Paid-in Capital

If the stock is issued exactly at its par value and there is no additional paid-in capital, the entry will reflect only the common stock account.

Assume:

• Number of shares issued: 1,000
• Par value per share: $5
• Issue price per share: $5

Journal Entry:

Date	Account	Debit	Credit
YYYY-MM-DD	Cash	$5,000
YYYY-MM-DD	Common Stock		$5,000

Explanation:

• Cash (Debit): Increases by the total amount received ($5,000).
• Common Stock (Credit): Increases by the total par value of the issued shares ($5,000).

These journal entries ensure that the company’s equity accounts are updated correctly and provide a clear record of stock issuance transactions.