Stock Subscription Accounting

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Stock Subscription Accounting

Stock Subscription Overview

Stock subscriptions allow investors or employees to pay in a consistent amount over time and receive shares of stock in exchange. When such an arrangement occurs, a receivable is set up for the full amount expected, with an offset to a common stock subscription account and the Additional Paid-in Capital account (for the par value of the subscribed shares). When the cash is collected and the stock is issued, the funds are deducted from these accounts and shifted to the standard common stock account.

Stock Subscription Example

The Slo-Mo Molasses Company sets up a stock subscription system for its employees and they choose to purchase 10,000 shares of common stock with a par value of $1 for a total of $50,000. The entry is:

	Debit	Credit
Stock subscriptions receivable	50,000
Common stock subscribed		40,000
Additional paid-in capital		10,000

When Slo-Mo receives the $50,000 cash payment, it offsets the Stock Subscriptions Receivable account, and shifts funds stored in the Common Stock Subscribed account to the Common Stock account, as noted in the following entry:

	Debit	Credit
Cash	50,000
Stock subscriptions receivable		50,000
Common stock subscribed	50,000
Common stock		50,000