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The Corporate Finance Institute Accounting
Contributed Capital
Contributed Capital (share capital) refers to amounts received by the
reporting company from transactions with shareholders. Companies
can generally issue either common shares or preferred shares.
Common shares represent residual ownership in a company and in the
event of liquidation and dividend payments, common shares can only
receive payments after preferred shareholders have been paid out
first. If a company were to issue 10,000 common shares for $50 each,
the contributed capital would be equal to $500,000. The journal entry
would be:
DR Cash: 500,000
CR Common Shares: 500,000
In addition to shares being sold for cash as in the previous example, it is
also common to see companies selling shares on a subscription basis. In
these situations, the buyer usually makes a downpayment in purchasing
a certain number of shares and agrees to pay the remaining amount at
a later date. For example, if XYZ Company sells 10,000 common shares
for $10 each on a subscription basis that requires the buyer to pay $3
per share when the contract is signed and the remaining balance 2
months later, the journal entry would look as follows:
DR Cash: 30,000
DR Share Subscriptions Receivable: 70,000
CR Common shares subscribed: 100,000
The share subscriptions receivable functions similar to the accounts
receivable (A/R) account. Once the receivable payment is paid in full, the
common shares subscribed account is closed and the shares are issued
to the purchaser.
DR Cash: 70,000
CR Share Subscriptions Receivable: 70,000
DR Common shares subscribed: 100,000
CR Common Shares: 100,000
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