What is Paid in Capital?


What is Contributed or Paid-in Capital?

Contributed Capital is also called Paid-in Capital. It includes any amounts “contributed” or “paid in” by investors or stockholders through purchasing of stocks or other investments. Contributed Capital includes:

  1. Outstanding Shares — Contributed Capital is increased by amounts paid into the corporation by purchases of the corporation’s stock by investors.
  2. Additional Paid-in Capital — Contributed Capital is increased by amounts paid into the corporation by purchases of the corporation’s stock above the par value by investors.
  3. Treasury Stock — Contributed Capital is decreased by the amounts spent by a corporation to buy back its own stock.
Flash card Paid in Capital

What are Outstanding Stocks (Shares)?

Outstanding Stocks or Shares are those stocks that have been authorized and issued (sold) to stockholders. The number of shares a corporation is authorized to issue is stated in the corporation’s charter. The charter is also known as “articles of incorporation.” It lists the objectives, structure, and operations of the new corporation. When a corporation purchases back some of its issued stocks (Treasury Stock), Outstanding Stock is equal to Issued Stock less Treasury Stock. Outstanding Stock represents the number of shares still in the hands of investors (stockholders).

What is Additional Paid-in Capital?

Additional Paid-in Capital is the difference between the par value of a stock and the price a stockholder pays for that stock. If the par value of a stock is $1.00 and the investor pays $50.00 for the stock, $49.00 represents the Additional Paid-in Capital. Additional Paid-in Capital occurs when stock is purchased during the Initial Public Offering (IPO) for that stock. Additional Paid-in Capital is also called Additional Paid-in Capital in Excess of Par or APIC.

What is Par Value?

When it comes to stocks, par value is the stated value assigned to a stock by the corporation when the stock is issued. It’s usually a very small amount. It represents the absolute least price a stock can sell for. It may be a penny or a dime or a dollar.

What is the Journal Entry for Stocks Sold at Par Value?

Example: One share of Common Stock issued with a par value of $1 sells for par value.

Cash1.00
Common Stock 1.00
Example of Journal Entry for Common Stock sold at par value.

What is the Journal Entry for Stocks Sold Above Par Value?

Example: One share of Common Stock issued with a par value of $1 sells for $50.

Cash50.00
Common Stock 1.00
Additional Paid in Capital49.00
Example of Journal Entry for Common Stock sold above par value.

What is No-par Value Stock?

No-par Value Stock is issued without a par value being assigned. With no-par stock, stock prices are determined by how much investors are willing to pay for the stock.

What is the Journal Entry for Stocks without Par Value?

Example: One share of Common Stock issued without a par value sells for $50.

Cash50.00
Common Stock 50.00
Example of Journal Entry for Common Stock sold at market value, no par.

For an overview of Paid-in Capital and Additional Paid-in Capital, watch this video:

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Caroline Grimm

Caroline Grimm is an accounting educator and a small business enthusiast. She holds Masters and Bachelor degrees in Business Administration. She is the author of 11 books and the creator of Accounting How To YouTube channel and blog. For more information visit: https://accountinghowto.com/about/

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