Share Capital Journal Entry

Last Updated On -27 Mar 2026

In company accounts, share capital represents the funds raised by a company by issuing shares to the public or investors. These funds form a major part of the company’s long-term capital and are essential for business operations and expansion.

Recording share capital transactions correctly is important because they directly impact the company’s financial statements. Understanding how to pass journal entries for share capital helps students build a strong foundation in corporate accounting.

What is Share Capital?

Share capital is the amount of money invested by shareholders in a company in exchange for ownership. It is divided into shares of a fixed value, and investors become shareholders by purchasing these shares.

From an accounting perspective, share capital is recorded as a liability in the company’s books because it represents the company’s obligation to its shareholders.

Types of Share Capital Transactions

Share capital journal entries are an important part of corporate accounting. They record the process of raising funds through shares and ensure that all transactions are properly accounted for. By understanding the different stages—application, allotment, calls, and forfeiture—students can gain clarity on how companies manage their capital structure. With practice, these entries become easier to understand and apply in real-world scenarios.

Share capital involves different stages, and each stage requires separate journal entries. These include:

Issue of shares
Application money received
Allotment of shares
Calls on shares
Forfeiture of shares

Each stage reflects a different financial transaction in the company’s accounting records.

Journal Entries for Issue of Shares

When a company issues shares, the accounting entries depend on the stage of payment.

1. Application Money Received

When the company receives application money from applicants:

Bank A/c Dr
To Share Application A/c

This entry records the receipt of money from applicants.

2. Transfer of Application Money

When application money is transferred to share capital:

Share Application A/c Dr
To Share Capital A/c

This entry reflects that the application money is now part of share capital.

3. Allotment Money Due

When shares are allotted and allotment money becomes due:

Share Allotment A/c Dr
To Share Capital A/c

4. Allotment Money Received

When allotment money is receive

Bank A/c Dr
To Share Allotment A/c

Journal Entry for Forfeiture of Shares

If a shareholder fails to pay allotment or call money, the company may forfeit the shares.

Share Capital A/c Dr
To Share Allotment A/c
To Share Call A/c
To Share Forfeiture A/c

This entry cancels the shares and records the amount already received.

Example of Share Capital Journal Entries

Suppose a company issues shares worth ₹1,00,000. Application money of ₹50,000 is received.

First, the bank account is debited with ₹50,000 and share application account is credited. Later, when the application money is transferred, the share application account is debited and share capital account is credited.

This process continues through allotment and calls until the full amount is received.

Importance of Share Capital Journal Entries

Proper recording of share capital transactions ensures transparency and accuracy in financial statements. It helps in tracking funds received from shareholders and ensures compliance with accounting standards.

These entries are also essential for preparing the company’s balance sheet and understanding its financial position.