HeVariable Rental Sectionof a balance sheet represents the amount of capital invested by the owners in the business.This heritage can be divided into business retained profits and the share capital introduced by the owners.
Equity of owners = capital + retained profits
When a company operates through a company or corporation, capital is known as shareholders 'capital, shareholders' capital, the investment or capital of shareholders and the introduced capital is known as social capital or capital and represents the property of the company's propertyor corporation.
This property also offers the shareholder the right to a share of business retained profits.The business properties unit is called actions.
The value of the company that has a shareholder will depend on the amount of social capital (capital) that they have, and this, in turn, will depend on how many shares they have.An action is a term used to describe a capital social unit and identify through a certificate of shares or a certificate of actions that the shareholder can negotiate.
For example, if a company issued 1,000 shares and a shareholder has 100 shares, it has 100/1000 = 10% of the company's capital stock that has 10% of retained business profits.
Companies can issue different types of social capital, each of which implies different rights related mainly to dividends and votes.The two types of social capital usually issued are common actions and common actions andpreferencial acts.
Owners of the common shares (shareholders) have capital in business with the right to distribution of profits.Owners control business by appointing the business board that manages business and voting for important policy issues.
Common actions are a more risky investment, as you do not have the right to prefer the return of capital or a dividend and, in case of settlement, should wait until favorite shareholders, holders, other guaranteed creditors have paid.
The advantage of common shares is that it is entitled to distribution of business profits and usually provides greater long -term investment income.
Types of Capital Stock
The following diagram summarizes the connection between the main types of social capital.
- Authorized Actions:The maximum number of shares the company can issue.
- Acts issued:Actions actually issued to shareholders.
- Indispensive actions:Authorized actions that have not yet been issued.
- Circulation actions:Issued actions that are still in the hands of shareholders.
- Treasury actions:Actions issued by the company.
When a company begins, various legal formalities must be completed, including the indication of which is the maximum number of actions you want to issue.This maximum number of shares is known as authorized actions or authorized capital.For example, a company that could have 1,800,000 authorized actions.
Authorized actions have not been issued to shareholders and simply define the maximum number of shares that the company can issue (sell).
Since the actions issued should not exceed authorized actions, it is normal, so it is easier to start with a larger authorized capital
The actions issued are the amount of authorized shares that the company has actually issued (sold) to shareholders in exchange for payment (usually in cash).
Thus, for example, a company could have 1,800,000 authorized social capital, but could have issued 700,000 shares for shareholders, so it has 1,100,000 shares, which may later issue.
To raise funds from shareholders, a company will issue shares at a price.For example, if the desired company issued is:
Capital Stock = Number of shares issued x Price for shareapital shares = 700,000 x 2.00 capital shares = 1,400,000
The 700,000 shares are issued at a price of 2.00 each and the company receives 1,400,000 cash shareholders.If the authorized number of shares is 1,800,000, you may still issue another 1,100,000 shares later to raise additional money.
Social capital accounting
After receiving money, it can be expected that the double -entry diary will simply be the following:
* All values shown in ‘000
However, historically each action has a designatedby value(Sometimes called nominal value, nominal value), which is a notional price by action below which the action cannot be issued.The accounting convention requires that the capital value of capital -related capital above the value of the torque is shown separately as a prize in shares, usually called capital higher than the value of torque.
Therefore, if in the previous example, the shares had a nominal value of 0.50 each, the value above the nominal value is 2.00 - 0.50 = 1.50 award per share and the value shown as the action award It is:
Action Award = Number of actions issued vs. Sharestock Award Prima = 700,000 x 1.50stock cousin = 1,050,000
The accounting entry of double entry to issue these actions would then be
|Cousin in common actions||1.050|
* All values shown in ‘000
Capital shares in the balance sheet
In the financial statements, the capital of the capital issued is the amount included in the balance sheet as part of the shareholders' assets, while the authorized capital is disclosed through the Menda.
|Common shares, value to 0.50;1,800,000 authorized actions;700,000 actions issued and in circulation||1.400|
* All values shown in ‘000
You can see more examples of variable lace tickets in ourCapital Magazine of ShareholdersInput reference.
Treasury actions and circulation actions
A company can buy your shareholders' shares.The shares purchased are called Treasury actions or actions.Accounting magazines related to the purchase of treasury actions are shown in ourEntrances to the diary of the Treasury Cost MethodReference.Any action issued does not repurchase is known as circulation actions.
Called capital and payment capital
Called capital is that part of the capital issued to which the company requested payment.The paid payer or the capital contributed is that part of the capital is that a company received the payment of shareholders.
Rabbing Capital Example
A company is formed with an authorized capital of 100,000 shares of 15.00 each, which is the maximum number of shares that the company can issue.Business emission shareholders with 80,000 shares of 15.00 each, resulting in a capital issued of 1,200,000, but only initially requires 10.00 per action that grants a capital called 800,000.
If all shareholders pay for their shares, the capital paid will be the same as the capital called, which is 800,000.However, if, for example, only 70,000 shares are paid, the capital paid will be 70,000 x 10.00 = 700,000.
Authorized Capital = 100,000 x 15.00 = 1,500,000 Capital issued = 80,000 x 15.00 = 1,200,000 UP capital
The stock trade is the process of buying and selling shares of a company.These are important actions (see Treasury actions).So, for example, if a company issue shares at a price of 2.00 each, and the shareholder to buy 1,000 shares, then the company will receive 1,000 x 2.00 = 2,000 in cash.Increase any prize, the company will make the following entry
If the market value of the shares now increases to 5.00 per share and the shareholder to sell to shareholder B, shareholder B paid 1,000 x 5.00 = 5,000 to shareholder A and shareholder A obtained a gain of 1,000 x (5.00 - - 2.00) = 3,000, being the 5,000 that received the least the 2,000 they paid for them.The company is not involved in these transactions and accounting tickets are not necessary.
Last modificationFebruary 14, 2020byMichael Brown
About the author
Certified Public AccountantMichael BrownHe is the founder and CEO of the double entrance bookeping.He manager and auditor of Deloitte, a large accounting company, and has a title from Laughborough University.
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February 14, 2020