4.3 Corporation Journalizing

Corporations vs Other Forms at Bookkeeper Level

A corporation is a juridical person created under law, with ownership divided into shares. In Philippine TESDA Bookkeeping NC III (CBC expansion), you are not expected to master full Revised Corporation Code lawyering—but you must journalize equity events that look different from Ana's sari-sari Capital account or Carla and Diego's partner Capitals.

Core corporate equity accounts you will see in NC III materials:

There is no Owner's Drawings account in a corporation. Shareholders receive dividends when declared by the board (in problems: when the declaration facts are given). Officers who are also shareholders may receive salaries as employees—that is Salaries Expense, not drawings.

Share Capital and Additional Paid-in Capital

Par value issuance for cash

Island Fresh Trading Corp. is authorized to issue ordinary shares with ₱100 par. On 5 May 2026 it issues 1,000 ordinary shares at par for cash.

Issuance above par (Additional Paid-in Capital)

At NC III level, many CBC-aligned materials introduce share premium / additional paid-in capital when shares are issued for more than par.

On 5 May, Island Fresh issues 1,000 ordinary shares, ₱100 par, for ₱135 per share cash.

• Total cash = 1,000 × ₱135 = ₱135,000
• Share Capital at par = 1,000 × ₱100 = ₱100,000
• Additional Paid-in Capital = ₱35,000

Rules of thumb

1. Credit Share Capital only for par (or stated) amount unless the problem uses no-par shares credited entirely to Share Capital.
2. Put the excess in Additional Paid-in Capital (Share Premium)—not in Retained Earnings and not in Sales.
3. Do not record "authorized capital" as a journal entry merely because the articles authorize a maximum; journalize issuances (and subscriptions if the lesson includes them).

Issuance for non-cash assets

If the corporation issues 500 shares, ₱100 par, for equipment valued at ₱60,000:

Use the value assigned in the problem (fair value of asset or shares, as stated).

Preference shares (awareness)

Some problems mention preference (preferred) shares with a fixed dividend rate. Journalizing issuance follows the same debit Cash / credit Share Capital — Preference / credit APIC pattern. Dividend preference affects allocation of dividends, not the issuance entry itself.

Retained Earnings

Retained Earnings represents accumulated net income less losses and dividends (and other adjustments). Bookkeepers increase Retained Earnings when closing net income:

Compare:

• Sole prop: close net income → Capital — Owner
• Partnership: close/allocate → Capital — Each partner
• Corporation: close net income → Retained Earnings

A net loss debits Retained Earnings (or creates a Deficit presentation). Do not debit Share Capital for ordinary operating losses unless a problem describes a formal capital reduction—rare at NC III.

Dividends Declared and Paid

Declaration date

On 10 December, the board declares a cash dividend of ₱25,000.

Using a temporary Cash Dividends account is acceptable if the chart closes it to Retained Earnings later; many training problems debit Retained Earnings directly.

Payment date

On 28 December, dividends are paid through the bank.

Memorize the two-step pattern: declaration creates a liability; payment settles it. Declaring does not credit Share Capital. Paying dividends does not debit Drawings.

What dividends are not

• Not an expense on the income statement (dividends are distribution of earnings)
• Not the same as partner drawings (timing and accounts differ; drawings do not require formal "declaration" in SP/partnership problems the way corporate dividends do)
• Not automatically equal to net income—only the declared amount is journalized

Stock dividends (awareness only)

If a problem introduces a small stock dividend, typical training entries debit Retained Earnings and credit Share Capital (and APIC if applicable) for the prescribed amounts—no cash. Only journalize stock dividends when the assessment provides clear amounts and titles.

Worked Mini-Cycle: Corporate Equity Events

1. Issue 2,000 ordinary shares, ₱50 par, at ₱50 (at par) → Debit Cash ₱100,000; credit Share Capital ₱100,000.
2. Issue 500 ordinary shares, ₱50 par, at ₱80 → Debit Cash ₱40,000; credit Share Capital ₱25,000; credit APIC ₱15,000.
3. Earn and close ₱70,000 net income → Debit Income Summary; credit Retained Earnings ₱70,000.
4. Declare ₱20,000 dividends → Debit Retained Earnings; credit Dividends Payable.
5. Pay dividends → Debit Dividends Payable; credit Cash.

After these events, contributed capital totals ₱140,000 (Share Capital ₱125,000 + APIC ₱15,000) and Retained Earnings is ₱50,000 if no other adjustments—useful for proving you posted equity correctly before financial statements.

Contrast Table: SP, Partnership, and Corporation Equity

Common assessment traps

• Crediting Capital — Owner for share issuance in a corporation problem
• Debiting Drawings when a shareholder receives a dividend
• Crediting Sales for share premium
• Recording authorized shares as if issued
• Paying dividends by debiting Share Capital instead of Dividends Payable / Retained Earnings pathway
• Treating a president's salary as dividends (salary = expense; dividends = distribution)

Philippine Micro-to-Small Transition Note

Many learners first keep books for sole props, then see clients incorporate. The operational journals (sales, purchases, cash payments) stay familiar. What changes is the equity section and distribution entries. When a problem says "Inc." or "Corp.," switch your equity titles immediately before you analyze the document.

Assessment Tips for Corporate Journalizing

• Compute par total and APIC separately when issue price ≠ par.
• Always split declaration vs payment for cash dividends.
• Close corporate net income to Retained Earnings, not to a personal Capital account.
• Use PHP amounts and share counts exactly as stated.
• If both preference and ordinary shares appear, label Share Capital accounts distinctly.

Mastering these entries completes CBC journalizing by form of organization: you can now move from Ana's Capital, through partner Capitals and P&L shares, to Share Capital, APIC, Retained Earnings, and dividends—with assessment-ready precision.