A SYSTEM OF ACCOUNTING FOR COTTON GINNERIES. 



29 



In case the entire capital stock is paid at one time, the following method might be 

 used. 



Entries to illustrate issue of capital stock and payment thereof: 



Debit. Credit. 



$8, 000. 00 Cash. 

 2, 000. 00 Notes receivable. 



Capital stock $10, 000. 00 



Representing payment of capital stock issued to the following: 



It sometimes happens that shares of stock are acquired or sold for more or less than 

 the par value, and in such cases the premium or discount should be charged or credited 

 as the case may be to "Premium and discount on capital stock" account. 



For example, if a going concern desires to sell additional shares, the shares being 

 above par in value, an entry should be made as follows: 



Debit. 

 $105. 00 



Cash. 



Credit. 



Capital stock $100. 00 



(Premium and discount on capital stock 5.00 



(For sale of one share of stock at $5 premium.) 



Likewise, if shares were sold at a discount, there would be a debit to premium and 

 discount on capital stock. 



The balance in this account is sometimes written off by periodical charges to the 

 surplus account. If preferred, the entry may be made direct to surplus instead of 

 opening the account premium and discount on capital stock. 



It occasionally happens that capital stock is offered for sale and is purchased by 

 the organization, to be held for resale at some future date. While this may seem to 

 be in the nature of a retirement of the capital stocks so purchased, and as such should 

 be charged to the capital stock account, accountants generally have preferred to treat 

 this transaction differently, and charge a purchase made in this manner to an account 

 called "Treasury stock." In case the purchase was made at par, the entry should be: 



Debit. Credit. 



$100. 00 Treasury stock. 



Cash $100. 00 



(For purchase of one share of stock from Chas. Brown.) 



When treasury stock is sold, the total amount received from such sale should be 

 credited to the treasury stock account. 



It should be remembered, however, that it is not incorrect to charge par value of 

 the stock thus purchased to capital stock, but it is not recommended. 



In case the organization is not a corporation, but a partnership, sole ownership, or 

 association, the capital stock account would be replaced by accounts indicating the 

 ownership, or membership. 



Surplus (12). 



Debit: 



4. 



With the amount of dividends de- 

 clared by the board of directors. 

 (Credit Dividend account.) 



With any net loss at the end of a 

 fiscal period as shown by a debit 

 balance of the Loss and gain ac- 

 count. (Credit Loss and gain.) 



With adjustments decreasing the 

 profits of a previous fiscal period. 1 



With the amount of income and 

 excess-profits taxes paid. 



With any appropriation of surplus 

 made by the directors. 



Credit: 



With the amount of surplus as 

 shown by the balance sheet at 

 the time of opening the books. 



With the amount of net gain at the 

 end of each fiscal period, as shown 

 by a credit balance of the Loss 

 gain account. (Debit Loss and 

 gain.) 



With adjustments increasing the 

 profits of a previous period. 1 



In case the liabilities and outstanding capital stock exceed the total assets at the time 

 of opening the books, the entry to this account will be a debit and will indicate a deficit. 

 The same will be true if, at any future time, thia account has a debit balance. 



1 errors and omissions are often found which apply to a previous fiscal period. Adjustment of such items 

 Will be made through the Surplus account as indicated. 



