User Guide

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.