USA Bookkeeping for money put into a new S-Corp in IL

[Vladimir]

Hi my name is Vladimir. I'm a junior in college majoring in accounting, and I am taking on my first real world bookkeeping project for a friend who opened an automotive repair business several months ago and has had nobody doing bookkeeping.

My question is about how to record transactions for the money he put into the business and here are some specifics:

• The business is an S-Corp in Illinois.
• There are two shareholders. They issued stock to themselves for very cheap in an 80/20 proportion, and this is money credited to Capital Stock, correct?
• The minority stockholder did not put a lot of money into the business, but he has the technical expertise.
  
• The majority stockholder put in a large amount that he got from taking out a personal loan. I'm not sure how to record this transaction for the company. Is it a Shareholder Loan? Or is this Contributed Capital? Perhaps something else entirely?
  
• The owners explained that their agreement was that the 80% owner is in that position because he is contributing the money from his personal loan.

Thank you all in advance for your time and help!

 

[Scramble!]

It depends on their shareholder agreement (which they should have in writing). Cash in exchange for stock would be:

DR Cash
CR Common Stock

If the stock has a par value, it might be

DR Cash
CR Common Stock (number of shares issued X par value per share)
CR Additional Paid-in Capital (or Paid-in Capital In Excess of Par) (remainder to balance)

Other money contributed without an issuance of shares is probably a Note Payable, presuming the company is expected to pay that money back over time (hopefully there is a written promissory note underlying the transaction):

DR Cash
CR Note Payable

Hope that helps.

 

[Vladimir]

That is very helpful, thank you Scramble!