When a company receives investment funds, the accounting treatment varies depending on the nature of the investment (cash or non-cash), organizational structure (limited liability company or joint-stock company), and transaction timing (pre- or post-capital verification). The core principles revolve around accurately reflecting paid-in capital and capital surplus while adhering to regulatory requirements. Below is a structured breakdown of common scenarios and their corresponding entries.
1. Cash Investment Received
For limited liability companies, the entry involves paid-in capital:
借：Cash in Bank
贷：Paid-in Capital – [Investor Name]
If the investment exceeds the registered capital, the excess becomes capital surplus:
借：Cash in Bank
贷：Paid-in Capital – [Investor Name]
Capital Reserve – Capital Surplus
For joint-stock companies, replace paid-in capital with share capital:
借：Cash in Bank
贷：Share Capital – [Investor Name]
2. Pre-Capital Verification Transactions
Funds received before formal capital verification are temporarily classified as other payables and later transferred to equity:
- Initial receipt:
借：Cash in Bank
贷：Other Payables – [Investor Name] - Post-verification adjustment:
借：Other Payables – [Investor Name]
贷：Paid-in Capital/Share Capital – [Investor Name]
Capital Reserve – Capital Surplus (if applicable)
3. Non-Cash Asset Investments
Non-monetary contributions (e.g., equipment, intellectual property) require fair value measurement:
借：Fixed Assets/Intangible Assets (at fair value)
Input Tax – VAT Payable (if applicable)
贷：Paid-in Capital/Share Capital – [Investor Name]
Capital Reserve – Capital Surplus (balance difference)
For example, accepting machinery valued at $500,000 with a $50,000 agreed capital contribution:
借：Fixed Assets – Machinery $500,000
贷：Paid-in Capital – [Investor] $50,000
Capital Reserve – Capital Surplus $450,000
4. Project-Specific Investment Funds
When funds are earmarked for specific projects without equity dilution, use long-term payables:
借：Cash in Bank
贷：Long-term Payables – [Investor Name]
5. Startup Phase Considerations
During incorporation, non-shareholder funds (even labeled as "investment") must first be recorded as other payables until formal shareholder status is /confirm/ied:
借：Cash in Bank
贷：Other Payables – [Investor Name]
After legal registration updates:
借：Other Payables – [Investor Name]
贷：Paid-in Capital/Share Capital – [Investor Name]
Capital Reserve – Capital Surplus
Key Compliance Notes:
- Valuation requirements: Non-cash assets require third-party appraisal to avoid over/understatement.
- Tax implications: Capital surplus from non-monetary investments may trigger deferred tax liabilities.
- documentation: Retain payment vouchers, capital verification reports, and shareholder agreements for audits.
By tailoring entries to these scenarios, businesses ensure alignment with International Financial Reporting Standards (IFRS) and maintain transparent equity structure reporting.
