What journal entries are made when founders contribute to the charter capital?
A new LLC has been set up: one founder brought money, the other brought a computer. In which accounts and in what order is the charter capital recorded? Short key points and one example.
On the day a company is registered, nobody may have brought in any money yet. But in accounting, the charter capital is recorded from that moment. For this there is an intermediate account called "founders' debt".
Key rules
- In a joint-stock company, the charter capital is kept in 8310 "Ordinary shares" and 8320 "Preferred shares". Charter capital made up of participants' units and participation interests (for example, interests in an LLC) is accounted for in account 8330 "Units and participation interests"
- Once the company is registered, the amount in the founding document is recorded: 4610 / 8330. Now the founders owe the company
- If a founder brings money: 5110 / 4610 (5010 / 4610 if into the cash desk)
- If a founder brings property (a computer in the example below): 0150 / 4610. NAS No. 21 states that property contributed in kind is recorded at the value determined by agreement of the founders
- Accounting for 4610 is kept separately for each founder: it must be clear who has contributed how much and how much remains
- The charter capital may not exceed the amount in the founding document. It may be increased or decreased only by a decision of the founders and after amendments are made to the founding documents
- Until the amendment is registered, contributions made by founders to increase the charter capital are recorded not in 8330 but in 6630
Example: "Ko'k Gumbaz" LLC
Jasur and Malika opened a design studio. Under the founding document the charter capital is 100 000 000 soum: Jasur's interest is 60 million, Malika's is 40 million. Jasur transferred his money to the bank, while Malika brought a powerful computer for graphic work valued at 40 million soum.
| Transaction | Debit | Credit | Amount |
|---|---|---|---|
| Charter capital recorded after registration | 4610 | 8330 | 100 000 000 |
| Jasur's contribution received in the bank | 5110 | 4610 | 60 000 000 |
| Malika's contribution: computer received | 0150 | 4610 | 40 000 000 |
Result: the balance of 4610 is zero, meaning the founders have fully settled their debt. On the balance sheet, the liabilities and equity side shows 100 million of charter capital, and the asset side shows 60 million in money and a 40 million computer.
Test yourself
5 questions on this topic: pick an option or reveal the answer.
"Oqsaroy mebel" LLC decided to increase its charter capital. The amendments to the founding documents have not yet been state-registered, but a participant paid in an additional contribution in cash to the settlement account. Under NAS No. 21, what journal entry is made?
After an LLC was registered, the founder's contribution to the charter capital was recorded as a debt. Now the founder has paid the contribution in cash into the settlement account. What journal entry is made?
By decision of the founders of "Dilnura Savdo" LLC, accrued dividends of 20,000,000 soums (a debt in 6610) were directed to increasing the charter capital. Which journal entry is made?
A founder of "Qamashi transport" LLC transferred a truck to the company in payment of his share in the charter capital. The founders agreed to value the truck at 150 000 000 soum (the law provides for no other procedure). Under NAS No. 21, what journal entry records the receipt of the truck?
By decision of the relevant body, the amount of a grant (8810) was directed to increasing the organisation's charter capital. Which journal entry matches the table in NAS No. 21?
Answered: 0 / 50 of 5 correct
All tests →See also
Sources
- NAS No. 21 "Chart of Accounts", paragraphs 196–198 · account 4610; founders' debt 4610 / 8310, 8320, 8330; money 5010–5530 / 4610; fixed assets 0110–0190 / 4610; property contributed in kind at the value determined by agreement of the founders; analytical accounting of 4610 by each founder
- NAS No. 21, paragraphs 281, 343–345, 347 and 348 · account 6630; 8310, 8320 (shares) and 8330 (units and participation interests); charter capital in the registered amount; changes only after a decision of the founders and amendment of the founding documents; 8330 "Units and participation interests"
- Example and amounts · prepared by the author, hypothetical