Payment onto share capital account

Payments into equity are made to two types of accounts – share capital and reserves. No payments are to be made to retained earnings. Retained earnings account can only be changed in two circumstances – for paying dividends (that is payment is done from retained earnings) or changed when dealing with restructuring, i.e. merging or dividing entities. That’s however something we’re not focusing on at this point.  

With the below we’re showing an example on how to increase the share capital with cash being paid into the share capital account. Note that in case of non-monetary contribution, the account for Cash and cash equivalents should be changed to a respective asset account, i.e. Machinery or Buildings.

The accounting entry to be made is as follows:

Db Cash and cash equivalent s10,000

Cr Share capital 10,000