Paid In Capital

Read more: http://www.investopedia.com/terms/p/paidincapital.asp#ixzz2Eu46QXyl   Definition of 'Paid In Capital' The amount of capital "paid in" by investors during common or preferred stock issuances, including the par value of the shares themselves. Paid in capital represents the funds raised by the business from equity, and not from ongoing operations. Paid in capital is a company balance sheet entry listed under stockholder's equity, often shown alongside the balance sheet entry for additional paid-in capital. It may also be referred to as "contributed capital".

Investopedia explains 'Paid In Capital' Paid in capital can be compared to additional paid in capital, and the difference between the two values will equal the premium paid by investors over and above the par value of the shares. Preferred shares will sometimes have par values that are more than marginal, but most common shares today have par values of just a few pennies. Because of this, "additional paid in capital" tends to be representative of the total paid-in capital figure, and is sometimes shown by itself on the balance sheet.

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Capital stock is a term that encompasses both common stock and preferred stock. "Paid-in" capital (or "contributed" capital) is that section of stockholders' equity that reports the amount a corporation received when it issued its shares of stock.

State laws often require that a corporation is to record and report separately the par amount of issued shares from the amount received that was greater than the par amount. The par amount is credited to Common Stock. The actual amount received for the stock minus the par value is credited to Paid-in Capital in Excess of Par Value.

To illustrate, let's assume that a corporation's common stock has a par value of $0.10 per share. On March 10, 2012, one share of stock is issued for $13.00. (The $13 amount is the fair market value based on supply and demand for the stock.) The accountant makes a journal entry to record the issuance of one share of stock along with the corporation's receipt of the money (note that the "Common Stock" account reflects the par value of $0.10 per share):

Date	Account Name		Debit	Credit
March 10, 2012	Cash		13.00
		Common Stock		0.10
		Paid-in Capital in Excess of Par Value		12.90

While some states require a par value for common stock, other states do not. If there is no par value, some states require a "stated value." If this is the case, the entry will be the same as the above except that the term "stated" will be used in place of the term "par":

Date	Account Name		Debit	Credit
March 10, 2012	Cash		13.00
		Common Stock		0.10
		Paid-in Capital in Excess of Stated Value		12.90

If a state does not require a par value or a stated value, the entire proceeds will be credited to the Common Stock account:

Date	Account Name		Debit	Credit
March 10, 2012	Cash		13.00
		Common Stock		13.00

Generally speaking, the par value of common stock is minimal and has no economic significance. However, if a state law requires a par (or stated) value, the accountant is required to record the par (or stated) value of the common stock in the account Common Stock.