 In this presentation, we will record a transaction related to the issuance of common stock. Data will be on the left side. We're going to enter that into the journal entry here, the general journal. We will post that not to the general ledger, but to a worksheet so that we can see a really quick example of what the effect will be on the accounting equation as well as individual accounts. We'll have the beginning worksheet here, the beginning trial balance, the ending trial balance. The trial balance is in order, as all trial balances are, assets and liabilities, equity, income and expenses, assets and grain, liabilities and orange, the equity section in light blue, revenue and expense, income statement in dark blue. We're just going to give some accounts here so we can see the balancing process when we record this information. The most difficult part about corporate transactions is the equity section oftentimes because it's broken out a little bit different than we may see it for an individual. It's basically broken out in terms of the capital investment and then the retained earnings less what has been earned over the life of the company, less any dividends that have been given out to owners. It's a little bit different than we might see in a partnership where we're going to just track things by what is owed to individual partners. That's where we want to concentrate here, the standardization of corporation stock. And that's what we'll be working on here. Note that we have the debits are not bracketed, the credits are bracketed. In other words, Excel sees debits as positive, credits as negative, and debits minus the credits then add up to zero. Therefore, debits equal the credits. That's what the zero means. Net income is going to be revenue minus expenses. There are none on this trial balance. So we're going to issue stock here. So it says we're going to issue 20,000 shares of $5 power value stock for $10. It's important to note that a stock issuing from the corporation, stock being bought from the corporation, it's much different than a normal stock sale, a normal stock transaction which is typically between two stock holders. So whenever we see stock being bought and sold, it's not typically being bought from the corporation. It's being traded by two individuals owning stock. That's the beauty of stock is that it's all same. It's all standardized. Therefore we can just trade it almost like currency, almost like coins. But the initial offering would be when the corporation initially sells their stock in order to generate capital in order to give some investment into the company. And then they could issue stock at any other time throughout the business. But note that it's not something that's going to happen all the time. That's going to happen when the company wants to generate capital through the issuance of stock. Hopefully they issue stock at the beginning and then they generate revenue later and rather than needing more capital by issuing more stock, typically, hopefully they're generating revenue and giving out dividends to the existing stock holders. So we're going to record this information here. We're going to say that if they issue 20,000 shares of $5 power common stock, they're going to get, first question, is cash affected? We're going to say yes. And that's generally the reason for the issuing of stock. The company wants to generate capital to do what it needs to do. It needs to generate capital over and above or the initial offering, what they're receiving in revenue. So we're going to say cash is going to be going to the business, cash is a debit balance account. We're going to increase it by doing the same thing to it, another debit. So we're going to right click on F7, right click and copy it. I'm going to put it in B2 in our journal entry, right click and paste one, two, three, just the values. We could type it in there as well. I like to copy and paste whenever possible. Now the problem is that we sold 20,000 shares, but then it's got this $5 power value and then we sold it for $10. What does that mean? In essence, we have a power value and a market value. The power value really is just an arbitrary number and this used to be really confusing to me. It's a little weird to think about why would we just make up a number for the power value. One reason is it's going to be a way for us to standardize everything. So if I see something that's in the common stock here, then I can standardize exactly how many stocks are there by using the power value. That standardization process is one of the core advantages to stock. So a power value is just going to be an arbitrary kind of a place holding number, which helps us to standardize the stock. It's not what we actually got for it. The price here that we sold it for, $10, is the market price. And of course we're selling stock, our stock, just like we would sell anything else looking for the highest price. So the power value will typically be a low price, lower than what we expected to sell the stock for. We will sell the stock for whatever we can, highest price possible, at the point of sale. So the sales price, the market price will change over time. The power value price will not. That's the point of the power value. So the cash then, of course, is going to be calculated based on the market price. So we're just going to take the number of shares, which was $20,000, times the market price, $10, we're going to get $200,000. We'll do that same calculation here in sell C2 and excel, we'll say equals. We'll type in the $20,000 times the $10 and enter. Okay, so then that's what we're going to get. We're going to issue the common stock. Now that's going to be in the equity section. Common stock is similar to the capital account for a sole proprietor or partnership. It represents what is owed to the owners, to the stockholders. A little bit different, however, in that the common stock only represents what was invested. It doesn't represent, as does the capital accounts for a partnership or a sole proprietor, what has accumulated over time in terms of revenue minus what has been taken out in terms of draws or dividends. In a corporation, we break out what has been invested in the common stock versus the accumulation of revenue over time, the accumulation of earnings called retained earnings. Those two things are going to be broken out differently. That's the thing that's a bit different between a corporation's equity section and that of a sole proprietor. The equity section as a whole, you can think of it as just the same. It all adds up to what is owed to the owners. If you add it all up, it's assets minus liabilities. It's just that we need to break it out between the owners in a different way. These are all shareholders, which are basically people holding tokens that are all worth the same amount of the company, if it's all common stock. We're going to say that the common stock is going to go up. Like the capital account, it has a credit balance. We're going to make it go up by doing the same thing to it, another credit. We're going to right click on F10, right click and copy. We're going to put that in B3, right click and paste, 1, 2, 3. You can type it in there if you so choose. We're going to go to the credit side this time. Now this is the tricky part. We're going to take the 20,000. It's not going to be the 200,000 that goes in there, in other words, because there's a par value. That means that we want to standardize the common stock number. We're going to use the $5 amount to do that. We're going to take the $20,000 times the $5 par or $100,000 is how much the common stock is going up by. So I'm going to put in D3, I'm going to do that same calculation, but make it a negative by saying instead of equals negative, 20,000 times 5, 20,000 times 5, negative 20,000 times 5, that'll give us a negative or credit of 100,000. The difference then, of course, is 200,000 minus 100,000 or 100,000 that we need in order to for the debits to equal the credits. I'm going to do that with our negative sum formula, the plug formula, which is negative. SUM double-click the sum function and highlight those cells. So we're going to say the 200 minus the 100, we need another 100 to be in balance. What will that go to? It's going to go to the additional paid in capital. And so these two accounts can be confusing when you first learn these two accounts, when we first learn these two accounts. As you would think, it would just go to the common stock, but we have this par value. And therefore, that will standardize this amount, meaning this amount will always be in standard format. It'll always be in units of $5 par value. So we can easily figure out then how many stocks were traded by taking whatever is there divided by $5, that'll give us the amount of stocks that are issued and outstanding. But it's not how much money we got for those stocks, because that varies depending on when we sold the stock with the stock price. So adding up of these two amounts, the additional paid in capital, what was paid over and above the par value for the stocks issued, and this common stock number is what we actually received in investment for the issuance of our stock. So in other words, the paid in capital in excess of par for the common stock is just that it's what we got paid over and above the par value for the common stock we issued. Because of course, we're going to issue it at whatever market price is there, and the par value is set at a standard price generally far below what we believe that what the market price will be. So it's going to be a credit as well, it's going to increase the equity section. So we're going to right-click and copy it. We're going to put that in B4, right-click and paste, 1, 2, 3. So there's going to be our journal entry. Let's post it and see what happens. We're going to post cash first. Here's cash in the journal entry. Here it is on the trial balance. We want to be in H7 where we will say equals. Point to that cash. It's going to bring the cash up by 200,000. So here we got the cash going up by 200,000 here. Then the common stock, here it is on the journal entry. Here it is on the trial balance. Then we're going to be in H10 and just say equals and point to that 100,000 bringing the 500,000 balance up. So there's already has been common stock issued. We're issuing more at that time at this time to 600,000. Then the additional paid in capital in H11. We're going to say equals and we're going to point to this 100,000 a second. It's going to go from 600,000 up by 100,000 to 160,000. And that will then put us back in balance here and there we have it. Cash went up, but there's no effect on net income, no effect on the revenue or expenses. We got cash not from operations, not from doing work, but from issuing stock to stockholders. That's one of the major benefits of a corporation. We can generate capital by giving equity investment by issuing stock to stockholders, increasing our cash here even though we haven't generated any revenue. So that's what we have and the revenue increases or the capital revenue does not increase. The capital increases here. And so note the breakout here. We're increasing in this case part of total equity, which is all this total equity is 1 million for 18,000, which equals revenue minus expenses. Just like with a sole proprietor or partnership, this total equity represents what is owed to the owners. We don't need to break out individual owners as we do with a partnership because they all own the same shares, meaning individual owners could own more shares, but all shares are the same for common stock shares. So all an individual can do is own more or less shares. And it's not like each share has a different type of rights or type of piece of the company or ownership of the company, as is the case with the capital account for a partnership. Therefore, what we're going to do is we're just going to break out instead of each individual share, each individual owner, as we do with a partnership, we're going to break out the amount that was invested in the partnership versus the accumulated earnings of the partnership, less anything that we gave out in terms of dividends. And that's how we'll break out the equity section here. So if we look at this in terms of the stockholders' equity, the most confusing question, if we just look at the stockholders' equity section of, say, like a financial statement, the most confusing component is really just the wording, the typing of it. And so the stockholders' equity has common stock and we're really going to generally see the par value that will be written in here, the par value in this case being $5 par value. And then it'll have the amount that will be authorized, 150 shares authorized. That's how many they could legally give away if they so choose and give it or so if they so choose. And then we're going to have the amount that we're actually issued, they chose to issue these amount of shares. And that's one we can actually find if there's a par value by looking at the financial saying, okay, there's 600,000 common stock, 600,000 common stock divided by the par value of $5. That means 120 shares must be out there because the par value is the same for all shares, unlike the market value, which changes over time. So we can say, okay, there's 120 shares, 1,000 shares out there. So then we can just bring these numbers over in terms of our numbers here. We're just going to say, okay, the amount issued in outstanding is going to be this 600,000. So in, I'm going to put it in M10. I want to flip the sign, so I'm going to put negative of that number. And that's how much is outstanding. Then we've got the paid in capital, which again, I don't want to credit over here. So I'm just going to take that number and flip the sign by saying instead of equals negative of that number. And that's the amount that was invested. I'm going to go ahead and sum them up on the right hand side so we can see the capital investment equals the sum in N11. Double click the sum function and highlight those two numbers, 600 plus 160 is 760. And then we're just going to take the retained earnings, which is the accumulation of revenue. And note, we didn't do anything with retained earnings. When will it be affected? When we close out retained earnings to, when we close out the net income, these accounts down here to retained earnings in the closing process. So within retained earnings, I'm going to say negative of this number and enter. And that means that the total stock holder's equity, what is owed to the owners. And again, I would think about it as this way, as if only one, what if one individual owned all the stock? That would be basically this number here, just like a sole proprietor. What if it was a sole proprietor or a completely owned corporation by one individual? That would be the sum of these two equals the sum. Double click the sum of the 760 and the 658. And I'm going to make this a little bigger, 1 million 418. And that, of course, is the revenue, or the assets minus the liabilities, also equaling 1 million 418. So this is what is actually owed to the owners. It's going to be broken out by owners in terms of stockholders. Because all the stockholders are all the same, or all the stocks are all the same, and the only thing that differs is how many stocks owned, we don't have to break out the owners by name, or by how much is owed to any particular owner as we do with a partnership. We can just have it all be the same. It's just like tokens on a stock. And therefore break it out in terms of to give us a little bit more detail what has been invested, capital investments, versus the earnings. And another reason that's really important is because when we distribute the earnings of a corporation, they're often taxable. So when we give the earnings back to the corporation, if we make money, then give the money back to the individuals who had invested in the corporation in the form of dividends. Those dividends, unlike draws, are typically taxable. And it's important for us to know whether the dividends we give are going to be from earnings, which means they're taxable. Typically, if we give back the original investment, then that's not really earnings. And it shouldn't you would think from a logical standpoint, we won't get in the tax law here, but it shouldn't be really taxed out. If we're just if they invested money and we're just giving it back, we didn't make any money. There's no earnings and we gave it back. It shouldn't be taxable. So for a few different reasons, we need to break out the retained earnings. It will give us a sense of what has been earned versus what has been just invested through and owners through the purchase of stock.