Accounting treatment for Shares

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion
Can anyone tell me how to account for ordinary shares in a company's first year of trading for issued shares not paid?
I believe that authorised shares are just stated on the balance sheet but when issued and paid are posted as CR Share Capital DR Bank. :?

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting treatment for Shares

    You can do the following:

    DR Unissued share capital £1000
    CR Authorised share capital £1000

    Then when shares are sold (eg 10 shares of £1 each sold):

    DR Bank £10
    CR Unissued share capital £10

    Therefore you have £990 of unissued share capital or £10 of issued share capital out of the £1000 available.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting treatment for Shares

    thank you, I haven't heard of these accounts before and didn't think of creating them. :)
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting treatment for Shares

    I have replied to your thread on the MIP forum re this query.

    However, I have not come across pne version of accounting for this and am not sure it is correct.

    Currently there are two "versions" of capital - authorised and issued. Issued is accounted for on issue, so if you have authorised capital of 1,000 shares and have issued 100 shares out of the 1000 authorised, you would normally credit ordinary share capital in the equity section of the balance sheet and either debit bank or in your case create a debtor "unpaid share capital" - or like I have said in my other thread, put it against a directors loan account, if appropriate.

    Authorised shares are the total number of shares the company is authorised by its articles to issue as and when the need arises. You would not normally account for these on commencement of trade because some companies never actually issue any more shares than, say, 100 out of 1000. This is usually more prevalent in owner managed companies. Authorised share capital is usually disclosed in a note in the statutory accounts underneath the actual issued share capital.

    Kind regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting treatment for Shares
    peugeot wrote:
    I have replied to your thread on the MIP forum re this query.

    However, I have not come across pne version of accounting for this and am not sure it is correct.

    Currently there are two "versions" of capital - authorised and issued. Issued is accounted for on issue, so if you have authorised capital of 1,000 shares and have issued 100 shares out of the 1000 authorised, you would normally credit ordinary share capital in the equity section of the balance sheet and either debit bank or in your case create a debtor "unpaid share capital" - or like I have said in my other thread, put it against a directors loan account, if appropriate.

    Authorised shares are the total number of shares the company is authorised by its articles to issue as and when the need arises. You would not normally account for these on commencement of trade because some companies never actually issue any more shares than, say, 100 out of 1000. This is usually more prevalent in owner managed companies. Authorised share capital is usually disclosed in a note in the statutory accounts underneath the actual issued share capital.

    Kind regards
    Steve

    Yes I agree exactly with what your saying Steve, and in the accounts it is exactly the same as what you have said. I think the only reason why our practice does it like that is so you can see from straight from the TB what the authorised amount is. The figures net each other off when the accounts are produced to show the issued share capital and, as you said, the authorised share capital is a note to the accounts

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