Stock can be defined as the share of the investor in the equity of the business that allows the investor to claim over the profits and the assets of the business. The owner of the stock can also claim his proportion of dividend when it is claimed by the management of the business. The stock owner can also claim share in the residual assets of the company when the business is liquidated. If the percentage of stock invested by the investor is higher it can also participate in the business decisions of the entity. A business entity can make different kinds of transactions with its stock such as sale of the stock for cash, issuance of the stock for exchange of non cash assets and repurchasing of the sold stock.
There is a common stock account in the journal entry and if you are selling common stock for the sake of cash you will record this transaction in the common stock account according to the par value of each share or stock that is sold. If the investors is investing an additional amount in the business that amount is recorded Additional Paid In Capital account.
An example of a company selling its common shares for cash can be shown as under
Suppose ABC Company sells its 10,000 shares at the rate of $8 per share and the par value of the share is $0.01. The share issuance of the company can be recorded as
|Common Stock at the rate of 0.01 par value
|Additional Paid in Capital
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