How to Increase Additional Paid-In Capital
The recorded amount of additional paid-in capital can only increase when an issuer sells more stock to investors, where the price at which the shares are sold exceeds the par value of the shares. There is no impact on additional paid-in capital when the price of an issuer’s shares increases on a stock exchange, since these transactions between buyers and sellers do not involve the issuer.
Example of Additional Paid-In Capital
The board of directors of a business authorizes 10,000,000 shares of common stock at a par value of $0.01. The company then sells 1,000,000 of these shares for $5 each. To record the receipt of cash, the company records a debit of $5,000,000 to the cash account, a credit of $10,000 to the common stock account, and a credit of $4,990,000 to the additional paid-in capital account.
Terms Similar to Additional Paid-In Capital
Additional paid-in capital is also known as contributed capital in excess of par.
