Contributed Capital

What is 'Contributed Capital'

Contributed capital is an entry on the shareholders' equity section of a company's balance sheet that summarizes the total value of stock that shareholders have directly purchased from the issuing company. Contributed capital is calculated by adding the par value of the shares to the value paid that was greater than par value. Shares that investors purchased from the secondary markets are not incorporated into the contributed capital, but shares sold as a result of a secondary offering would count, as the proceeds of these shares go directly to the issuing company.

BREAKING DOWN 'Contributed Capital'

Nonprofits rely on contributions from donors, and companies rely on capital investment from investors. While it may sound like "contributed capital" refers to a contribution or donation to a nonprofit, it actually refers to the cash investors give companies in exchange for stock or equity.

Contributed Capital Calculation

There are two ways for investors to invest in a company: through debt or through equity. Debt is recorded on the company's balance sheet under liabilities. Equity is also recorded on the balance sheet, but equity is recorded in a section referred to as stockholders' equity – and contributed capital is a part of this section. When an investor buys a stock, the company records a debit to the cash account for the amount of cash received in the transaction. The account that is credited with this cash is contributed capital, also referred to as paid-in capital on the balance sheet.

The formula for contributed capital is par value plus additional paid-in capital. In other words, contributed capital includes the par value of the stock and the additional amount paid over par value, referred to as paid-in capital.

Contributed Capital Considerations

This is not the only transaction that finds its way into the contributed capital account. The contributed capital account is also credited with cash from the receipt of fixed assets in exchange for stock or the reduction of a debt in exchange for stock. In other words, if the company pays for assets and eliminates debt in exchange for stock, it is recorded in this line item. The only caveat is that the shares must be purchased directly from the company in the form of an initial public offering (IPO) or a secondary IPO. The company does not receive cash when shares of its stock are traded on the exchange. The value of these shares goes up in value, but that increase in market value is not recorded to cash. Contributed capital can also include preferred stock.

RELATED TERMS
  1. Paid In Capital

    The amount of capital "paid in" by investors during common or ...
  2. Capital Stock

    The common and preferred stock a company is authorized to issue, ...
  3. New Issue

    A reference to a security that has been registered, issued and ...
  4. Stated Value

    A value that, instead of being par value, is assigned to a corporation's ...
  5. Full Stock

    A stock with a par value of $100 per share. A full stock issue ...
  6. Invested Capital

    The total amount of money that was endowed into a company by ...
Related Articles
  1. Investing

    Additional Paid-In Capital

    Additional paid-in capital is an account in the equity section of a balance sheet. It represents the additional amount paid for the company’s shares over the par value of the shares. Additional ...
  2. Investing

    Paid-Up Capital

    Paid-Up Capital is listed in the equity section of the balance sheet. It represents the amount of money shareholders have paid into the company by purchasing shares. It’s essentially two accounts, ...
  3. Investing

    What's Share Capital?

    Share capital, also called equity financing, is the total amount of money and property a company has received for selling its shares to shareholders.
  4. Markets

    Why Would A Stock Have No Par Value?

    A stock with no par value might trade for thousands of dollars. It just depends on what the market deems it’s worth.
  5. Investing

    What is a Share Premium Account?

    The share premium account is an equity account found on a company’s balance sheet.
  6. Investing

    What is Par Value?

    Par value is a term used for investments that means original value. It’s also called face value or nominal value.
  7. Investing

    How Dividends Affect Stockholders' Equity

    Find out how dividends affect a company's stockholders' equity and how the accounting process changes based on the type of dividend issued.
  8. Markets

    What is Capital Stock?

    Capital stock refers to the number of authorized shares a corporation may issue, both common and preferred.
  9. Retirement

    401(k) Contribution Limits in 2016

    Find out what the contribution limits are for 401(k) retirement savings plans in 2016, including individual, employer and aggregate limits.
  10. Investing

    Cheap Stocks Or Value Traps?

    The value of stocks that trade at less than cash per share can be deceiving.
RELATED FAQS
  1. How do companies report the value of their capital stock?

    Find out how companies report the value of their capital stock in their financial statements, including why some companies ... Read Answer >>
  2. Why can additional paid in capital never have a negative balance?

    Find out why the additional paid-in capital entry on a company's balance sheet can never be negative and how paid-in capital ... Read Answer >>
  3. Is a company's paid in capital affected by the trading of its shares in the secondary ...

    Find out why the buying and selling of stock on the secondary market has no impact on the amount of paid-in capital generated ... Read Answer >>
  4. Does the profit or loss of a company affect its paid in capital?

    Find out why the profits or losses of a business have no effect on its total paid-in capital, including how paid-in capital ... Read Answer >>
  5. What is the difference between par and no par value stock?

    Understand the difference between par and no par value stock and how this differentiation affects corporate liabilities and ... Read Answer >>
  6. Are corporations required to state the par value of their stock?

    Find out when companies are required to state the par value of stock and why it is beneficial to businesses and shareholders ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center