Yes. And depreciate it.
I hate pop quizzes.
Just remember:
Debits on the left, Credits on the Right, Assets on a chair.
Shouldn’t the stock go under the equity part of the balance sheet? It’s on the same side as the liability part.
Assets = Liabilities + Equity
It’s neither; it’s part of shareholders’ equity.
A = L + E.
A Bank would consider it both an asset AND a liability.
Beware of asking important questions when some around here will enjoy pulling your leg.
It belongs in the equity section. If this is for a company you are forming, don’t make it “par value” stock. Just make it no par, with the amount equal to the dollars initially contributed. Much more involved here, so visit with a local CPA.
Technically, nowhere. You need the dollar amount of stock.
I find that dioramas help illustrate the concept.
It is Equity.
The left side of the balance sheet is Assets, and the right side is Liabilities and Equity.
It belongs in the equity section. 100% sure...final answer.
Nowhere, this is not a balance sheet entry. Capital stock is an Equity item, but the entry would have to represent the actual amount invested. Is this is a question for a course you are taking?
Be careful, Grasshopper. Much of the advice on this thread will get you 5-10 at Leavenworth.
Very funny stuff but somewhat less than optimal in the GAAP sense.
Debits to the left, credits to the right, debits = credits, fight, fight, fight!
LouAvul wrote:
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First, the disclaimer, I am neither a lawyer nor a CPA.
Now for the basic Accounting. On a balance sheet, everything must balance. Hence the name. And the balance is this: Assets = Liabilities + Owner Equity (Capital).
Also, Debits always balance to credits. Assets have a debit balance, and increasing their value is a debit. Liabilities and Equities have a credit balance, and increasing those is a credit entry in a transaction.
So there is a transaction when you start your business. The owner(s) invest something of value (often cash that is deposited in the corporate bank account). This results in an increase in the value of the asset account (perhaps Cash in Bank Account) and a corresponding increase in owner equity account (Common Stock Outstanding).
State laws vary, but usually the stockholder(s) must invest the par value of the common stock when the corporation is formed as one of the first transactions on the corporate books. So, the transaction for the common stock issued would be a debit to Cash in bank of $10,000, and a credit to Common Stock of $10,000. If this were the only transaction, the balance sheet after this single transaction would be
Assets:
Cash in Bank $10,000
-------
Total Assets $10,000
Liabilities:
Total Liabilities 0
Owner Equity:
Common Stock Outsanding $10,000
-------
Total Owner Equity $10,000
It’s probably a little late now, but if you are starting a corporation for a new business, it’s best to start with a minimal value for the common stock. Setting up with 10,000 shares at a par value of $0.01 is common. This means you only invest $100.00 in owner’s equity at the formation of the corporation.
If you invest more cash in the business to get started, it’s often smarter from a legal and accounting standpoint to write a promissory note or bond from the corporation and loan the corporation money. You can then secure the loan to any assets the corporation holds or acquires. You can also make some income from reasonable interest on the loan. And if everything goes badly, your main loan is a secured loan, and you are one of the secured creditors for most of your investment, and split the assets at liquidation time with other secured creditors. Stockholders are at the end of the line if the corporation liquidates. So you’d rather be a secured creditor who loaned the corporation money than a common stockholder with an equity position.
Again, I am not an attorney or a CPA, and you should discuss these options with your CPA and your attorney before taking any actions.
Oh, and welcome to the world of entrepreneurship.