Issuance of Common Stock Journal Entry

Overview

In accounting, when the company issues the common stock, its price will be used to compare with the par value or stated value of such stock before the journal entry is made. This is due to when the company issue at a price that is higher than the par value or stated, the difference will be recorded as the additional paid-in capital account on the credit side of the journal entry.

On the other hand, if the stock price equal to the par value, only cash and common stock on the balance sheet will be affected as the result of the issuance of the stock. In either case, both total assets and total equity will increase in the issuance of the common stock journal entry.

Issuance of common stock journal entry

Issuance of common stock at par value

The company can make the journal entry for the issuance of common stock for cash at par value by debiting the cash account and crediting the common stock account.

Account	Debit	Credit
Cash	$$$
Common stock		$$$

Issuance of common stock at price higher than par value

When the company issues the common stock at the price higher than the par value, it can make the journal entry by recognizing the difference between stock price and the par value as the additional paid-in capital as below.

Account	Debit	Credit
Cash	$$$
Common stock		$$$
Additional paid-in capital		$$$

Example

For example, the company ABC issues 20,000 shares of common stock at par value for cash. The par value of the common stock is $1 per share.

In this case, the company ABC can make the journal entry for issuance of the common stock as below:

Account	Debit	Credit
Cash	20,000
Common stock		20,000

In this journal entry, both assets and equity increase by $20,000. Also, there is no additional paid-in capital as the company issues the stock at the par value.

Alternatively, if the company ABC issues the stock at a price that is higher than the par value, the difference will be recorded as additional paid-in capital.

For example, the company ABC issues the above shares of common stock for $100,000 which is at the price of $5 per share instead of $1 per share.

In this case, it needs to credit the difference between the share price and par value as the additional paid-in capital like the journal entry below:

Account	Debit	Credit
Cash	100,000
Common stock		20,000
Additional paid-in capital		80,000

It is useful to note that when the corporation has more than one type of stock, the additional paid-in capital account above should be broken down to identify which type of stock it belongs to. This is why we may see the account such as “paid-in capital in excess of par-common stock” instead of just “additional paid-in capital” in the journal entry for the issuance of common stock above.