Question

How to analyze and record corporate equity transactions? v

Answer 1

To analyze the equity transactions of a company,we considered the issue of shares, say for $100,000, of common stock for cash or for kind, say for building.

Analysis and Recording: The analysis stage looks at the accounting equation while recording the transaction to the books. As commonly known, the cash or building is an asset whereas the common stock is a stockholders’ equity. Thus, when the company issues the common shares and collects $100,000, the asset in the form of cash/building increases and correspondingly the share issue increases the shareholders equity in terms of receiving the investments from the owners.

To balance the accounting equation, the assets side should balance the Liabilities & Equity side. In our case, the cash/building increases the assets by $100,000 and issue of shares increases the Shareholder’s Equity by the same $100,000. This would be the explanation towards the analyzing and recording the equity transactions of a company.