Скачать с ютуб Accounting for Issuing (selling) Common Stocks | Financial Accounting в хорошем качестве

Accounting for Issuing (selling) Common Stocks | Financial Accounting

In this video, we explain accounting for issuing common stock. Start your free trial:✅https://farhatlectures.com/ Issuing Common Stock Issuing common stock is a fundamental way for corporations to raise equity capital. This process involves selling shares directly to investors, either publicly through an initial public offering (IPO) or privately. This capital can be used for various purposes such as funding operations, paying down debt, or expanding business activities. Here’s a comprehensive overview of how issuing common stock works and its accounting implications. 1. Process of Issuing Common Stock Authorization: Before issuing stock, a corporation must have authorization as per its corporate charter, which specifies the maximum number of shares the corporation is allowed to issue (authorized shares). Offering: The corporation may issue stock directly to the public via an IPO or privately through private placements. The terms of the offering, including the price and number of shares, are determined based on factors like current market conditions and the company's capital needs. Subscription and Sale: Investors subscribe to the shares, agreeing to buy them at the specified price. Once subscribed, the transaction is completed when the corporation receives payment and issues the shares to the investors. 2. Accounting for Issuing Common Stock When common stock is issued, several accounting entries are required to record the transaction. The nature of these entries depends on whether the stock is issued at par, above par (at a premium), or below par (at a discount, which is rare and often restricted legally). At Par: Shares issued at their face (par) value. plaintext Copy Dr. Cash Cr. Common Stock (at par value) At a Premium (Above Par): Shares issued at a price higher than their par value. plaintext Copy Dr. Cash (total received) Cr. Common Stock (at par value) Cr. Additional Paid-In Capital (difference between par value and sale price) At a Discount (Below Par): This is unusual for common stock and typically not allowed under many jurisdictions’ laws as it can affect creditors' protection. plaintext Copy Dr. Cash (amount received) Dr. Discount on Stock (difference between par value and cash received) Cr. Common Stock (at par value) Note: Issuing common stock at a discount may require specific legal provisions and is generally avoided due to potential negative implications on shareholder equity. 3. Financial Statement Impact Balance Sheet: The equity section reflects an increase in common stock and possibly additional paid-in capital if the stock is issued at a premium. Cash or other assets increase by the proceeds from the issuance. Statement of Cash Flows: The inflow from issuing stock is reported in the financing section as a cash inflow. 4. Legal and Regulatory Considerations Securities Regulations: Public issuance of stock typically requires compliance with securities regulations, including registration with securities authorities like the Securities and Exchange Commission (SEC) in the U.S. Private placements may be subject to different rules but generally require less disclosure. Corporate Governance: Share issuance affects shareholder composition and potentially voting power, which can alter corporate governance dynamics. 5. Strategic Considerations Dilution: Issuing new shares dilutes existing shareholders’ percentage of ownership, which might affect their control and earnings per share. Capital Structure: Adding equity capital through stock issuance might improve the company’s debt-to-equity ratio, which can positively affect the company’s borrowing costs and financial stability. Conclusion Issuing common stock is a critical activity for corporations seeking to raise capital. It requires careful planning regarding the amount of stock to be issued, the issuance price, and compliance with legal and regulatory requirements. The process impacts various aspects of corporate finance, including the company's capital structure, shareholder relations, and regulatory compliance. Proper accounting for the issuance ensures transparency and accuracy in financial reporting, which is vital for maintaining investor confidence and corporate governance. #accounting #accountingandfinance #accountingexam