Download Define and Discuss on Stock Terminology

Define and Discuss on Stock
Terminology
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Before discussing the accounting for stock, it may be helpful to understand the following
stock terms.
Authorized stock. Per the articles of incorporation, the type and number of shares of
stock a corporation may sell. Approval by stockholders is required to issue any shares
above the authorized level.
Issued stock. The number of shares transferred to stockholders in exchange for cash,
assets, or services rendered.
Outstanding stock. Issued stock that is held by stockholders and has not been bought
back by the corporation.
Treasury stock. Issued stock that has been bought back by the corporation.
Market value. The price set by interested buyers and sellers for the stock of publicly
traded companies.
Par value. The value assigned in a corporation's articles of incorporation to one share of
stock. It appears on the stock certificate. In some states, the par value of all outstanding
shares is considered the legal capital of a corporation. Legal capitalis the amount of
contributed capital that must remain in the corporation and may not be paid out in
dividends.
Contributed capital. Also called paid‐in capital, it is the amount of value received by the
corporation when it issues its stock. It includes the par value and any amount received in
excess of the par value.
No‐par value stock. Shares of stock that do not include a par value. The Board of
Directors may assign a value to this type of stock.
Stated value. The value assigned to no‐par value stock by the Board of Directors of a
corporation.
Common stock. The class of stock issued most frequently by a corporation. Common
stock ownership normally includes the rights to vote on stockholder matters, to receive
dividends only after preferred stockholders, and, in the event of a liquidation, to receive
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their investment back if anything remained after the creditors were paid and the
investment of the preferred stockholders was returned to them. It may have a par value or
be no‐par value stock that may or may not have a stated value.
Preferred stock. Preferred stock is a class of stock that normally has the right to receive
dividends, and in the case of liquidation of the corporation, a return of investment before
the common stockholders. Preferred stock usually does not include a voting right.
Dividends. A dividend is a distribution by a corporation to its owners in the form of cash,
assets, or the company's stock. Stockholders do not have withdrawal accounts like sole
proprietors or partners because the only way they can get money from the corporation is
if the Board of Directors authorizes a dividend.
Stockholders' equity. In a corporation's balance sheet, the owners' equity section is
called stockholders' equity. It includes the contributed capital accounts and retained
earnings.
Retained earnings. The amount of net income a corporation has earned since it began in
business that has not been distributed as dividends to its stockholders. Net income
increases retained earnings. Dividends, net losses, and some treasury stock transactions
decrease retained earnings. Net income, and dividends, if they are recorded in a separate
account, are transferred to retained earnings during the closing entry process.
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