Stockholders' Equity: Classes of Capital Stock

Read this chapter, which details stockholders' equity, specifically capital stock. You learn about the different classes of stock, their characteristics, how capital appears on the Statement of Stockholders' Equity, and the steps for issuing stock to the public.

The accountant as a corporate treasurer

Most people think of the stock market as a place to buy and sell stock. However, few people give much thought to the other side of this transaction. The original purpose of the stock market is to allow corporations to raise the money needed to expand into new markets, invent new products, open new stores, and create new jobs. The initial public issuance of stock (i.e. going public) is one of the most significant milestones in the life of a public company.

For most individual investors, trading is done by stockbrokers. Who handles the stock transactions within a company? The treasurer or the person that performs the treasury functions is this person. This role requires someone with a strong background in accounting and finance.

When a company decides to issue bonds or additional shares of stock, the treasurer is the person responsible for executing the transaction at the lowest cost to the entity. The treasurer works closely with investment bankers and lawyers to get the stocks or bonds marketed and issued in accordance with state and federal laws. When a company issues stock for the first time (initial public offering, or IPO), the 175 task requires a thorough review of the financial position of the company and the public disclosure of this information for perhaps the first time. The treasurer/accountant must prepare what is called a prospectus. Among other things, the prospectus includes financial accounting information that is used in setting the price of the IPO.

The treasurer maintains custody of, or has access to, stocks owned by an entity and stock that is under the control of the entity. The treasurer also plays a pivotal role in the distribution of cash and stock dividends. The primary function of this position is controlling the cash inflows and outflows of the entity. A career as a corporate treasurer can involve the oversight of billions of dollars of stock, and the individual can earn a six-figure salary.

In this chapter, you study the corporate form of business organization in greater detail than in preceding chapters. Although corporations are fewer in number than single proprietorships and partnerships, corporations possess the bulk of our business capital and currently supply us with most of our goods and services.

This chapter discusses the advantages and disadvantages of the corporation, how to form and direct a corporation, and some of the unique situations encountered in accounting for and reporting on the different classes of capital stock. It is written from a US perspective, so you should be aware that laws and common practices may be different in other countries.