share-capital accounting

7/28/2019 Share-Capital Accounting

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Class 5lass 5

The Recording ProcessOf Share-CapitalTransactions


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After studying this chapter, you should be able to:

THE RECORDINGPROCESS of Capitalaccounts

1Explain how the capital accounts works in the recordingprocess

2Present the debits and credits of capital accounts andexplain how they are used to record business transactions

3 Identify the basic steps in the recording process

for business transactions who involve capital accounts

4 Present how are recorded capital transactions in theGeneral Journal


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RememberDEBIT AND CREDIT EFFECTS

Debits (+) Credits (-)

Increase assets Decrease assets

Debit balance

ASSETS

Debits (-) Credits (+)

Decrease Increase

Credit balance

LIABILITIES & CAPITAL


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NORMAL BALANCES ASSETSORMAL BALANCES ASSETSAND LIABILITIESND LIABILITIESAssets

Increase Decrease

DebitCreditDecrease Increase

Liabilities&Capital

Normal

Balance

Normal

Balance


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DEBIT AND CREDIT EFFECTS EBIT AND CREDIT EFFECTS OWNERS CAPITALWNERS CAPITAL

Debits Credits

Decrease owners capital Increase owners capital


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NORMAL BALANCE OWNERORMAL BALANCE OWNERSCAPITALAPITAL

Owners Capital

Decrease Increase

Debit

Credit

Normal

Balance


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Chart of capital accounts

101 Capital 1011 Subscribed and not paid in share capital (E)

1012 Subscribed and paid in share capital (E)

456 Shareholders receivable

- 456 Shareholders amounts receivable related to capital (A)

5xx Treasury accounts

- 5311 Cash (A)

- 5121 Cash in bank (A)


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THE RECORDING PROCESSHE RECORDING PROCESSof capital transactionsf capital transactions1analyze each transaction (+, -)2enter transaction in a General Journal(Db, Cr)3transfer journal information to Ledger Accounts

DocumentsDocuments


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Start-up process

for a new company

Step 1:The shareholders sign the memorandum ofassociation

The shareholders create the new company and its capital

share The new company has an new receivable face to

shareholders

Accounting elements changed:- Share capital (1011 Subscribed and not paid in share capital) => Cp=> + => Cr

- Receivables (456 Shareholders amounts receivable related to capital ) =>A=> + => Db

Receivables = Share capital

OR

Db: Receivables

Cr: Share Capital

Receivables = Share capital

OR

Db: Receivables

Cr: Share Capital


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Start-up process

for a new company

Step 2:The shareholders make a capitalcontribution in cash or goods (ex: fix assets, inventories)

Increase the value of companys cash or goods

Decrease the value of companys receivable face toshareholders

Accounting elements changed:

- Cash & Goods (5311 Cash or 5121 Cash in bank or 3xx Inventories ) =>A=> + => Db- Receivables (456 Shareholders amounts receivable related to capital ) =>A=> - => Cr

Cash or goods= ReceivablesCash or goods= Receivables


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Start-up process

for a new company

Step 3:The translation ofnot paid in share capitaltopaid in share capital

Increase the value of paid in share capital

Decrease the value of not paid in share capital

Accounting elements changed:- Share capital paid (1012 Subscribed and paid in share capital ) => Cp=> + => Cr

- Share capital not paid (1011 Subscribed and not paid in share capital ) => Cp=> - => Db

Share capital not paid= Share capital paidShare capital not paid= Share capital paid


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How it works

the Share Capitalaccount?

1011 Subscribed and not paid in share capital

- it works like an Equity&Liabilities account (credited by increases and

debited by decreases )

In credit (+):- increase of not paid in share capital (when the shareholders sign the memorandum of

association)

In debit (-):

- decrease of not paid in share capital (when the shareholders make a capital

contribution and the share capital become paid)

This account is credit balance and show the share capital subscribed and

not paid yet


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How it works

the Share Capitalaccount?

1012 Subscribed and paid in share capital

- it works like an Equity&Liabilities account (credited by increases and

debited by decreases )

In credit (+):- increase of paid in share capital (when the shareholders make a capital contribution and

the not paid share capital become paid)

In debit (-):

- decrease of paid in share capital (when the shareholders prepare their exit from the

company)

This account is credit balance and show the share capital subscribed and

paid by shareholders


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How it works

the Cashaccount?

5311 Cash

- it works like an asset account (debited by increases and credited by

decreases )

In debit (+):- increase of cash by receiving cash money from banks, costumers,

shareholders s.o.

In credit (-):

- decrease of cash by paying cash money to suppliers, banks,

government, employees, shareholders s.o.

This account is debit balance and show the total amount of cash money

available for future payments .


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How it works

the Cashaccount?

5121 Cash in banks


decreases )

In debit (+):- increase of cash in banks by receiving money from costumers,

shareholders by banking operations

In credit (-):

- decrease of cash in banks by paying money to suppliers, banks,

government, employees, shareholders s.o.

This account is debit balance and show the total amount of cash in banks

available for future payments .


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How it works

the Goodsaccount?

301 Raw Materials


decreases )

In debit (+):- increase of row materials by receiving this kind of inventories from

suppliers or shareholders

In credit (-):

- decrease of row materials by consuming inventories in the

manufacturing processThis account is debit balance and show the total value of row materials

available at the final of the period .


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How it works

the Goodsaccount?

213 Plant & Machinery & Motor vehicles


decreases )

In debit (+):- increase ofPlant & Machinery & Motor vehicles by receiving this kind of

fix assets from suppliers of non-current assets or shareholders

In credit (-):

- decrease ofPlant & Machinery & Motor vehicles by selling or cassation

of this kind of fix assetsThis account is debit balance and show the total value ofPlant &

Machinery & Motor vehiclesavailable at the final of the period .


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How it works

the Receivableaccount?

456 Shareholders amounts receivable related to capital


decreases )

In debit (+):- increase of receivables related to shareholders capital when the

shareholders sign the memorandum of association

In credit (-):

- decrease of receivables related to shareholders capital when the

shareholders make a capital contribution in cash or goodsThis account is debit balance and show the total value of goods and

money that the company have to receive from shareholders at the final

of the period .