Paid in capital
Encyclopedia
Paid in capital refers to capital
contributed to a corporation by investors
through purchase of stock from the corporation (primary market
) (not through purchase of stock in the open market from other stockholders (secondary market
)). It includes share capital
(i.e. capital stock) as well as additional paid-in capital.
However, the term has different definitions in different contexts. For example, it could refer to the money that a company gets from potential investors in addition to the stated (nominal or par) value of the stock, which coincides with the definition of Additional paid-in capital (Paid-in capital in excess of par). The user should be aware of the use of the term and abbreviation, otherwise it may be misleading.
A = Share capital
/Capital stock (Common stock
plus Preferred stock
)
B = Additional paid-in capital (a.k.a. Paid-in capital in excess of par.)
(or stated value) of the stock issued; also called contributed capital in excess of par.
For example, if 1,000 shares of $10 par value common stock is issued at a price of $12 per share, the additional paid-in capital is $2,000 (1,000 shares x $2). Additional paid-in capital is shown in the Shareholders' Equity section of the balance sheet.
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
contributed to a corporation by investors
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
through purchase of stock from the corporation (primary market
Primary market
The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process...
) (not through purchase of stock in the open market from other stockholders (secondary market
Secondary market
The page applies to the finanical term; For the merchandising concept, see Aftermarket .The secondary market, also called aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold....
)). It includes share capital
Share capital
Share capital or issued capital or capital stock refers to the portion of a company's equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value...
(i.e. capital stock) as well as additional paid-in capital.
However, the term has different definitions in different contexts. For example, it could refer to the money that a company gets from potential investors in addition to the stated (nominal or par) value of the stock, which coincides with the definition of Additional paid-in capital (Paid-in capital in excess of par). The user should be aware of the use of the term and abbreviation, otherwise it may be misleading.
Basic concepts
Paid-in Capital (a.k.a. Contributed Capital) = A + B :A = Share capital
Share capital
Share capital or issued capital or capital stock refers to the portion of a company's equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value...
/Capital stock (Common stock
Common stock
Common stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...
plus Preferred stock
Preferred stock
Preferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument...
)
B = Additional paid-in capital (a.k.a. Paid-in capital in excess of par.)
Additional Paid-in Capital
Excess received from shareholders over the par valuePar value
Par value, in finance and accounting, means stated value or face value. From this comes the expressions at par , over par and under par ....
(or stated value) of the stock issued; also called contributed capital in excess of par.
For example, if 1,000 shares of $10 par value common stock is issued at a price of $12 per share, the additional paid-in capital is $2,000 (1,000 shares x $2). Additional paid-in capital is shown in the Shareholders' Equity section of the balance sheet.
See also
- Share capitalShare capitalShare capital or issued capital or capital stock refers to the portion of a company's equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value...
- Capital surplusCapital surplusCapital surplus term that frequently appears as a balance sheet item as a component of shareholders' equity. Capital surplus is used to account for that a firm raises in excess of the par value of the shares ....
- Preferred stockPreferred stockPreferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument...
- Treasury stockTreasury stockA treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ....
- Reserve (accounting)Reserve (Accounting)In financial accounting, the term reserve is most commonly used to describe any part of shareholders' equity, except for basic share capital. Sometimes, the term is used instead of the term provision; such a use, however, is inconsistent with the terminology suggested by International Accounting...
- Balance sheetBalance sheetIn financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...