When a company acquires cash from the issuance of common stock, the effects on its financial statements are as follows:
Balance Sheet
- Assets: Cash increases by the amount of cash received from the stock issuance.
- Equity: Shareholders' equity increases by the same amount, recorded under common stock (at par value) and additional paid-in capital (the amount received above par value). This reflects the new investment by shareholders
The accounting equation after issuance is:
Assets (Cash)↑=Liabilities+Equity (Common Stock + APIC)↑\text{Assets (Cash)}\uparrow =\text{Liabilities}+\text{Equity (Common Stock + APIC)}\uparrow Assets (Cash)↑=Liabilities+Equity (Common Stock + APIC)↑
Income Statement
- There is no impact on the income statement because issuing common stock is not revenue or an expense; it is a financing activity
Statement of Cash Flows
- The cash inflow from issuing common stock is recorded in the financing activities section, increasing cash flow from financing activities
Summary:
- Cash (Asset) increases
- Common Stock and Additional Paid-In Capital (Equity) increase
- No effect on Income Statement
- Cash inflow reported under Financing Activities in the Cash Flow Statement
This means issuing common stock raises capital without affecting profitability directly but strengthens the company's financial position by increasing both cash and equity
