Share-Capital Accounting
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Transcript of Share-Capital Accounting
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Class 5lass 5
The Recording ProcessOf Share-CapitalTransactions
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After studying this chapter, you should be able to:
THE RECORDINGPROCESS of Capitalaccounts
1Explain how the capital accounts works in the recordingprocess
2Present the debits and credits of capital accounts andexplain how they are used to record business transactions
3 Identify the basic steps in the recording process
for business transactions who involve capital accounts
4 Present how are recorded capital transactions in theGeneral Journal
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RememberDEBIT AND CREDIT EFFECTS
Debits (+) Credits (-)
Increase assets Decrease assets
Debit balance
ASSETS
Debits (-) Credits (+)
Decrease Increase
Credit balance
LIABILITIES & CAPITAL
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NORMAL BALANCES ASSETSORMAL BALANCES ASSETSAND LIABILITIESND LIABILITIESAssets
Increase Decrease
DebitCreditDecrease Increase
Liabilities&Capital
Normal
Balance
Normal
Balance
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DEBIT AND CREDIT EFFECTS EBIT AND CREDIT EFFECTS OWNERS CAPITALWNERS CAPITAL
Debits Credits
Decrease owners capital Increase owners capital
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NORMAL BALANCE OWNERORMAL BALANCE OWNERSCAPITALAPITAL
Owners Capital
Decrease Increase
Debit
Credit
Normal
Balance
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Chart of capital accounts
101 Capital 1011 Subscribed and not paid in share capital (E)
1012 Subscribed and paid in share capital (E)
456 Shareholders receivable
- 456 Shareholders amounts receivable related to capital (A)
5xx Treasury accounts
- 5311 Cash (A)
- 5121 Cash in bank (A)
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THE RECORDING PROCESSHE RECORDING PROCESSof capital transactionsf capital transactions1analyze each transaction (+, -)2enter transaction in a General Journal(Db, Cr)3transfer journal information to Ledger Accounts
DocumentsDocuments
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Start-up process
for a new company
Step 1:The shareholders sign the memorandum ofassociation
The shareholders create the new company and its capital
share The new company has an new receivable face to
shareholders
Accounting elements changed:- Share capital (1011 Subscribed and not paid in share capital) => Cp=> + => Cr
- Receivables (456 Shareholders amounts receivable related to capital ) =>A=> + => Db
Receivables = Share capital
OR
Db: Receivables
Cr: Share Capital
Receivables = Share capital
OR
Db: Receivables
Cr: Share Capital
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Start-up process
for a new company
Step 2:The shareholders make a capitalcontribution in cash or goods (ex: fix assets, inventories)
Increase the value of companys cash or goods
Decrease the value of companys receivable face toshareholders
Accounting elements changed:
- Cash & Goods (5311 Cash or 5121 Cash in bank or 3xx Inventories ) =>A=> + => Db- Receivables (456 Shareholders amounts receivable related to capital ) =>A=> - => Cr
Cash or goods= ReceivablesCash or goods= Receivables
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Start-up process
for a new company
Step 3:The translation ofnot paid in share capitaltopaid in share capital
Increase the value of paid in share capital
Decrease the value of not paid in share capital
Accounting elements changed:- Share capital paid (1012 Subscribed and paid in share capital ) => Cp=> + => Cr
- Share capital not paid (1011 Subscribed and not paid in share capital ) => Cp=> - => Db
Share capital not paid= Share capital paidShare capital not paid= Share capital paid
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How it works
the Share Capitalaccount?
1011 Subscribed and not paid in share capital
- it works like an Equity&Liabilities account (credited by increases and
debited by decreases )
In credit (+):- increase of not paid in share capital (when the shareholders sign the memorandum of
association)
In debit (-):
- decrease of not paid in share capital (when the shareholders make a capital
contribution and the share capital become paid)
This account is credit balance and show the share capital subscribed and
not paid yet
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How it works
the Share Capitalaccount?
1012 Subscribed and paid in share capital
- it works like an Equity&Liabilities account (credited by increases and
debited by decreases )
In credit (+):- increase of paid in share capital (when the shareholders make a capital contribution and
the not paid share capital become paid)
In debit (-):
- decrease of paid in share capital (when the shareholders prepare their exit from the
company)
This account is credit balance and show the share capital subscribed and
paid by shareholders
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How it works
the Cashaccount?
5311 Cash
- it works like an asset account (debited by increases and credited by
decreases )
In debit (+):- increase of cash by receiving cash money from banks, costumers,
shareholders s.o.
In credit (-):
- decrease of cash by paying cash money to suppliers, banks,
government, employees, shareholders s.o.
This account is debit balance and show the total amount of cash money
available for future payments .
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How it works
the Cashaccount?
5121 Cash in banks
- it works like an asset account (debited by increases and credited by
decreases )
In debit (+):- increase of cash in banks by receiving money from costumers,
shareholders by banking operations
In credit (-):
- decrease of cash in banks by paying money to suppliers, banks,
government, employees, shareholders s.o.
This account is debit balance and show the total amount of cash in banks
available for future payments .
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How it works
the Goodsaccount?
301 Raw Materials
- it works like an asset account (debited by increases and credited by
decreases )
In debit (+):- increase of row materials by receiving this kind of inventories from
suppliers or shareholders
In credit (-):
- decrease of row materials by consuming inventories in the
manufacturing processThis account is debit balance and show the total value of row materials
available at the final of the period .
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How it works
the Goodsaccount?
213 Plant & Machinery & Motor vehicles
- it works like an asset account (debited by increases and credited by
decreases )
In debit (+):- increase ofPlant & Machinery & Motor vehicles by receiving this kind of
fix assets from suppliers of non-current assets or shareholders
In credit (-):
- decrease ofPlant & Machinery & Motor vehicles by selling or cassation
of this kind of fix assetsThis account is debit balance and show the total value ofPlant &
Machinery & Motor vehiclesavailable at the final of the period .
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How it works
the Receivableaccount?
456 Shareholders amounts receivable related to capital
- it works like an asset account (debited by increases and credited by
decreases )
In debit (+):- increase of receivables related to shareholders capital when the
shareholders sign the memorandum of association
In credit (-):
- decrease of receivables related to shareholders capital when the
shareholders make a capital contribution in cash or goodsThis account is debit balance and show the total value of goods and
money that the company have to receive from shareholders at the final
of the period .