Every so often you may find yourself in a position where you need to make payments into your company’s equity. Those payments are called capital payments or capital investments. Situations which impose the need can be different – need for extra capitalization from outside parties, i.e. banks for approving new loans, periodic losses that decrease the equity to lower level than accepted by regulators, etc.
Generally speaking, a capital payment is doing two things – it increases your company’s capital and your company’s assets (as the payments can both be monetary and non-monetary it can either be a bank account or respective asset account).
Looking into more detailed treatment however, let’s first focus on the equity and more so on the capital and surplus within equity. Making a capital payment generally means that one part of the total sum will be going to the share capital, i.e. issuance of new shares or increasing their face value, and the remaining part is transferred into a surplus account. Note here that a lot of it is tied with your local regulations, so please consult relevant documents or lawyers as needed.
Now as for the other half of the entry, it’s technically simpler – if you pay with actual money, it increases your bank account, and if by some form of an asset, it’s reflected on your balance sheet. To give you an example, let’s say we are paying 15,000 EUR into our equity. Of this 5,000 is going into capital and 10,000 into surplus. The accounting entry is as follows:
Db Cash and cash equivalents (i.e. bank account) 15,000
Cr Share capital 5,000
Cr Surplus 10,000
Note also than this transaction is not in any way itself reflected on the income statement. If anything goes to the income statement, it’s the legal consulting fees and possible regulatory charges, which may apply.