The financial accounting term additional paid-in capital refers to the amount paid in excess of par value by investors when capital stock is first issued. There are a number of subsequent transactions that can also affect the balance of this account. Additional paid-in capital appears in the owner's equity section of the company's balance sheet.
Additional Paid-in Capital = Price Paid for Capital Stock - Par Value of Capital Stock
Companies will issue capital stock to raise funds used to expand business operations and create additional shareholder value. When companies first issue capital stock, the price paid in excess of the security's par value is classified as additional paid-in capital in the owner's equity section of the balance sheet. For example, if a company issues 1,000,000 shares of capital stock with a par value of $1.00 and the price paid by investors is $25.00, then the journal entry for this transaction would be:
|Common Stock: 1,000,000 shares, par value $1.00||$1,000,000|
|Additional Paid-in Capital||$24,000,000|
Note: Additional Paid-in Capital is sometimes used interchangeably with Paid-in Capital in Excess of Par.
There are a number of transactions that affect the balance of additional paid-in capital. For example, debits to this account result from transactions involving:
While credits to this account result from transactions that include: