Stocks

Stocks are often thrown around as an easy, sure fire way for anyone to make some easy money. At least, that's what I previously thought about them. In short, a stock grants an individual or group a certain amount of ownership in a corporation. Those who partake in such ownership are known as stockholders. These individuals invest cash or other assets in a corporation in exchange for common stock. The stockholder actually does have significant influence on the success of the corporation in that they elect a board of directors who directly vote on the actions the business will take. A stockholder is also known as an investor because when a corporation issues capital stock, they are seeking to obtain capital as an exchange. Therefore, investors are literally investing assets into the good of the company. 

For the sake of this blog post, I won't get too complicated, but stock can be issued in a number of ways depending on the market at that time and the value of certain stock. Stock can be issued based on its par value (an amount assigned per share by the corporation) at par, below par (discount), or above par (premium). The journal entry for such issuances involve the debit of cash or other asset along with the credit of common stock and that of an account known as "Paid-In Capital of Excess of Par Value, Common Stock" OR "Discount on Common Stock". Each of these credited accounts is dependent on the difference between the issuance price and par value. In accordance to the natural laws of accounting, the credits will always equal the credits in the exchange of stock.

Cash                              x                Cash                                                x+y             Cash                                      x+y

       Common Stock            x                Common Stock                                 x              Common Stock                        x

                                                              Paid-In Capital of Excess of             y             Discount on Common Stock      y

                                                                  Par Value, Common Stock 

Stock can also be issued with a No-Par Value, meaning that the share is not assigned a stated value. Any amount that the corporation receives is legal capital and recorded as common stock. All proceeds from the issuance is credited to a "No-Par Stock" account.

Cash                                                       x 

       Common Stock, No-Par Value             x

Lastly, no-par value stock can be issued at a stated value. When received, the proceeds become legal capital and are credited to a stated value stock account. Usually, the stated value stock is issued at an amount in excess of the stated value.

Cash                                                                                                      x+y

        Common Stock                                                                                    x

        Paid-In Capital in Excess of Stated Value, Common Stock                y

Stock is issued at par 88% of the time, at no-par 9%, and with a stated value 3% of the time. It is also important to know that a corporation can receive other assets rather than cash in exchange for stock, but it can also assume liabilities on such assets. 

That's my brief explanation of the recording of issued stocks. On that note, there are only 3 days till Christmas.