Stock subscription accounting

Stock Subscription Overview

Stock subscriptions are a mechanism for allowing employees and investors to consistently purchase shares of company stock over a long period of time, usually at a price that does not include a broker commission. Because there is no commission, the price at which shares are purchased represents a good deal for buyers. Stock subscriptions can reduce shareholder and employee turnover, since they have an interest in remaining with the company to continue to take advantage of the subscription deal. The arrangement also represents a modest increase in the amount of funding available to the company.

To account for a stock subscription, create an account receivable for the full amount expected to be paid, with an offsetting credit to a stock subscription account. When the company later receives cash from the subscribing parties and issues stock to them, the receivable is eliminated.

Stock Subscription Example

The Close Call Company offers stock subscriptions to its employees, who elect to purchase 20,000 shares of common stock with no par value, for a total of $60,000. The entry is:

  Debit Credit
Stock subscriptions receivable 60,000  
     Common stock subscribed   60,000

When Close Call receives the various payments totaling $60,000, it credits the stock subscriptions receivable account and moves the amount recorded in the common stock subscribed account to the common stock account, as detailed in the following entry:

  Debit Credit
Cash 60,000  
     Stock subscriptions receivable   60,000
Common stock subscribed 60,000  
     Common stock   60,000