Additional Paid-in Capital (APIC)

1. Definition

Additional Paid-in Capital (APIC), also known as Capital in Excess of Par Value, represents the excess amount paid by investors over the par value of the shares stock. It is recorded in the shareholders' equity section of the balance sheet. APIC arises when a company issues shares at a price higher than their nominal par value during an IPO or secondary offering.

2. Calculation

APIC is calculated by subtracting the par value per share from the issue price per share and multiplying by the total number of shares issued.

$$ \text{APIC} = (\text{Issue Price} - \text{Par Value}) \times \text{Number of Shares Issued} $$

3. Accounting Treatment

When recording the transaction, the total cash inflow is debited to assets, while the credit side is split between Common Stock (at par value) and APIC.

Example: Issuing 1 share of $1 par value stock for $10

Account	Debit	Credit	Description
Cash	$10		Asset Increase
Common Stock		$1	Par Value
APIC		$9	Excess Amount

4. Economic Significance

APIC represents capital raised directly from shareholders, distinct from retained earnings generated through business operations. It serves as a capital buffer that strengthens the company's financial structure and can be capitalized later through bonus issues.