Class 5

The Recording Process

Of Share-Capital Transactions

THE RECORDING PROCESS of Capital After studying this chapter, you should be able to: accounts
1 Explain how the capital accounts works in the recording
process 2 Present the debits and credits of capital accounts and explain 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 the General Journal

Remember DEBIT AND CREDIT EFFECTS

ASSETS Debits (+)

Increase assets Debit balance

Credits (-)

Decrease assets

LIABILITIES & CAPITAL Debits (-)

Decrease

Credits (+)
Increase Credit balance

NORMAL BALANCES ASSETS AND LIABILITIES

Assets
Increase
Normal

Decrease

Liabilities&Capital
Debit Decrease Increase Credit
Normal Balance

Balance

DEBIT AND CREDIT EFFECTS OWNERS CAPITAL

Debits
Decrease owners capital

Credits
Increase owners capital

NORMAL BALANCE OWNERS CAPITAL

Owners Capital
Decrease Increase Normal DebitBalance Credit

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)

THE RECORDING PROCESS of capital transactions

1 analyze each transaction (+, -) 2 enter transaction in a General Journal (Db, Cr) 3 transfer journal information to Ledger Accounts

Documents Documents

Start-up process for a new company

Step 1: The shareholders sign the memorandum of
association
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

Start-up process for a new company

Step 2: The shareholders make a capital
contribution in cash or goods (ex: fix assets, inventories)
Increase the value of companys cash or goods Decrease the value of companys receivable face to shareholders 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= Receivables

Start-up process for a new company

Step 3: The translation of not paid in share capital
to paid 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 paid

How it works the Share Capital account?

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

How it works the Share Capital account?

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

How it works the Cash account?

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 .

How it works the Cash account?

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 .

How it works the Goods account?

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 process This account is debit balance and show the total value of row materials available at the final of the period .

How it works the Goods account?

213 Plant & Machinery & Motor vehicles
- it works like an asset account (debited by increases and credited by decreases ) In debit (+): - increase of Plant & Machinery & Motor vehicles by receiving this kind of fix assets from suppliers of non-current assets or shareholders In credit (-): - decrease of Plant & Machinery & Motor vehicles by selling or cassation of this kind of fix assets This account is debit balance and show the total value of Plant & Machinery & Motor vehicles available at the final of the period .

How it works the Receivable account?

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 goods This 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 .