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Share allotment account entries regarding

Bijoy (CEO) (33 Points)

16 June 2020

On allotment of shares, following entry is passed

Share application a/c Dr

To share capital.

Being both are personal accounts, how is the rule, debit the receiver and credit the giver applicable here.?

Thank you in advance

Regards

Bijoy

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7 Replies

Mohanraj J (1178 Points)
Replied 16 June 2020

Share Capital / Allotment A/c Dr
Particular Share holder's A/c Cr

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 17 June 2020

https://www.yourarticlelibrary.com/accounting/share/accounting-entries-regarding-issue-of-shares-at-par/56799

A going concern uses all real and nominal accounts while preparing final statements. However, it can have any number of ledgers which also includes personal accounts. For example, owners account. Here, Share application is an account which accumulated money from all applicants. I forgot to emphasise the fact that, all Equity is personal account because capital is personal account. Shareholders are also called as external creditors and they fall into the category of personal accounts.

The transaction starts like:

Bank

To Application a/c

then it is transferred to:

Application

To Share Capital a/c

The Share application account is a personal account in the books of the company. Which means, debit the receiver, and credit the giver. That is what you have done in the first entry, debited bank account which is personal and credited the application account. Next, you have to transfer the whole amount to share capital account, for which, you have debited that account and credited capital account. The journal entries not only represent the three golden rules, but also are used for transferring, reconciling, adjustment and closing entries. That is where the confusion is. If you can understand the process of how shares are issued, money collected and recorded in relevant accounts, you will pass on the entries specific to your needs. Eg. when Allotment, first and final call are made in a single call, you will record it as per the cash movements. Eg

Bank a/c

To Rams application

To Johns application

To Gita application

To Ravi application.

——————-

Application

To Share Capital a/c

———————

1 Like

Bijoy (CEO) (33 Points)
Replied 17 June 2020

Thank you for your replies. Though both replies shed some light on the issue, I am bit confused still. Let me just rephrase the question as below:

Here is the entry passed for allotment of shares:

Share Application a/c Dr

To Share Capital a/c

(Being application money transfered to share capital)

Is this entry for recording the movement of money,? If yes, who is receiving money here? Share Capital a/c or Share Application A/c?

Thank you in advance.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 17 June 2020

The first entry is recording cash from applicants. There can be 100 applicants which you cannot show in the financial statement of changes in equity. All numbers should be consolidated amounts.

FOR THE PURPOSE OF THE ABOVE: a transfer entry is created. That is the entry in your question. So all applicants who are share holders, their shareholding interests in the form of monetary value is transferred to share capital.

To be precise with your query:

1 Who is receiving money here? Company is receiving money here in the form of application money.

2 share capital or share application? Share application is bringing in the cash and this share application details are transferred to share capital account. All of it.

In other words,

applicant paid money into your bank and you transferred their accounts to total shareholders capital account.

Eg. if five partners bought in capital 1000₹, you will transfer all of their cash into bank- assets and credit their accounts in equity. This is because, you have a system called as Dual aspect- for every debit, there is a corresponding credit. The Dual aspect concept will balance the balance sheet equation.

Assets= Equity+ Liabilities

Here, Share application money is transferred to bank- assets increase by 1000₹.

Then you should balance liabilities by giving credit to capital account- liabilities increase by 1000₹.

1 Like

Bijoy (CEO) (33 Points)
Replied 17 June 2020

Share Application a/c Dr

To Share Capital a/c

In the above given entry, how does the second part, i.e To Share Capital A/c. qualify the rule, credit the giver. What is it giving to Share Application A/c?

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 17 June 2020

Hi, this not the personal account rule right. This journal entry is made for transferring application to share capital account.

SUMANTH KUMAR G (2 Points)
Replied 18 February 2022

HI,IF YOU ARE NOT ABLE TO APPLY INDIAN RULES OF ACCOUNTING.

THEN GO WITH AMERICAN RULES OF ACCOUNTING.

HERE SHARE APPLICATION ACCOUNT IS CONSIDERED AS LIABILITY ( CREDIT IF INCREASE IN LIABILITY )

IN FIRST ENTRY.

BANK ACCOUNT. DR

TO. SHARE APPLICATION ACCOUNT.

AND

SHARE APPLICATION ACCOUNT. DR

TO SHARE CAPITAL. ACCOUNT

IN THIS ENTRY YOU ARE REDUCING THE LIABILITY THAT YOU HAD CREATED IN FIRST ENTRY. SO SHARE APPLICATION ACCOUNT IS REDUCING IS DEBITED BECAUSE ( DECREASE IN LIABILITY IS DEBIT AS PERR AMERICAN RULES )

SHARE CAPITAL ACCOUNT US CREDITED BECAUSE BY REDUCING THE SHARE APPLICATION. YOU HAVE TO CREDIT THE SHARE CAPITAL ACCOUNT. ( INCREASE IN LIABILITY)

THE AMERICAN RULES OF

Type of Accounts Debit. Credit

Asset Increase Decrease

Liability. Decrease. Increase

Capital Decrease Increase

Revenue Decrease. Increase

Expense Increase Decrease

Drawings Increase Decrease