Simply Accounting phần 6 ppt

Corporations

15–4 Simply Accounting

Amc15.doc, printed on 12/05/97, at 12:01 PM. Last saved on 12/05/97 10:11 AM.

Confidential ACCPAC International

If National Construction was organized as National

Construction Limited, and Jim Brown and Mike Wood each

bought 5,000 common shares for $20 per share and 14,000

preferred shares for $2 per share, the equity (sometimes called

Stockholders' Equity or Shareholders' Equity for a corporation)

section of the balance sheet would look like this:

Equity

Paid in Capital

Common Shares 200,000

Preferred Shares 56,000

Total Paid in Capital 256,000

When balance sheets are more formally prepared, it is standard

practice to show beside each type of share how many shares

were authorized and how many are issued and outstanding.

The journal entry in the corporation's journal to record the

issuance of the above shares is:

Feb 1, 96 Cash in Bank

Common Shares

Preferred Shares

Issued 10,000 common @ $20; and

28,000 preferred @ $2

1020

3800

3850

256,000

200,000

56,000

At the end of the year, National Construction Limited, like

National Construction the proprietorship, would transfer the

balance of the Current Earnings account to the Previous Years'

Earnings account. For corporations, this is called the Retained

Earnings account, because the earnings have been retained by

the company rather than paid out to the shareholders as

dividends.

Even though the corporation has an account called Retained

Earnings, it may not be able to pay this amount out to its

shareholders quickly because it may not have that much cash in

the bank. It may have to convert some assets into cash (by

selling them, or if they are receivables, collecting them) before it

can distribute the retained earnings to its shareholders.