Share Subscription Accounting – A First Look
Think of a company raising money by selling pieces of itself. When you buy a share, you're not buying a product off a shelf — you're promising to pay for a part of the business. That promise, and the money that follows, is what share subscription accounting tracks.
The Everyday Intuition
Imagine you and three friends decide to start a small café. You each agree to contribute ₹10,000. But you don't all have the cash right now. One friend says, "I'll pay ₹5,000 now and the rest next month." Another says, "I'll pay the full amount after two months."
How do you keep track of who has paid what, and who still owes? You'd need a simple record: "Amount Promised" and "Amount Received." That's exactly what share subscription accounting does — but for a company with hundreds or thousands of investors.
The Precise Meaning
Share subscription is the process by which investors (subscribers) apply for shares of a company and agree to pay for them. The company records:
- The amount called up by the board (the portion of face value demanded from shareholders)
- The amount received from shareholders
- The amount unpaid (calls in arrears)
The key accounts involved are:
| Account | Nature | When Used |
|---|
| Share Capital Account | Liability (credit) | When shares are issued |
| Share Allotment Account | Personal (temporary) | When allotment money is due |
| Share Calls Account | Personal (temporary) | When call money is due |
| Calls in Arrears Account | Personal (debit) | When shareholders fail to pay |
| Bank Account | Real (asset) | When money is actually received |
Why It Matters
Without proper subscription accounting, a company cannot:
- Know how much capital it has actually collected
- Track defaulting shareholders
- Comply with the Companies Act, 2013
- Prepare accurate financial statements
The law requires that share capital be shown separately as "Subscribed but not fully paid" and "Subscribed and fully paid" in the balance sheet.
The Accounting Treatment – Step by Step
Stage 1: Application Money Received
When investors apply for shares, they send application money (usually a part of the face value).
Journal Entry:
Bank A/c Dr. [Amount received]
To Share Application A/c [Amount received]
Stage 2: Allotment of Shares
When the company allots shares, the application money is transferred to Share Capital. The remaining allotment money becomes due.
Journal Entry (for allotment due):
Share Allotment A/c Dr. [Amount due]
To Share Capital A/c [Amount due]
Stage 3: Receiving Allotment Money
Journal Entry:
Bank A/c Dr. [Amount received]
To Share Allotment A/c [Amount received]
Stage 4: Calls Made and Received
If the company makes a first call, second call, etc.:
When call is made:
Share First Call A/c Dr. [Amount due]
To Share Capital A/c [Amount due]
When call is received:
Bank A/c Dr. [Amount received]
To Share First Call A/c [Amount received]
Stage 5: Calls in Arrears
If a shareholder fails to pay a call:
Journal Entry:
Calls in Arrears A/c Dr. [Amount unpaid]
To Share Allotment/Call A/c [Amount unpaid]
The Balance Sheet Presentation (Proforma)
As per NCERT Class 12 Accountancy, the Share Capital section in the Balance Sheet appears as:
| Particulars | Note No. | Amount (₹) |
|---|
| EQUITY AND LIABILITIES | | |
| 1. Shareholders' Funds | | |
| (a) Share Capital | 1 | XXX |
| 2. Non-Current Liabilities | | |
| 3. Current Liabilities | | |
Note 1: Share Capital
| Particulars | Amount (₹) |
|---|
| Authorised Capital | |
| ... shares of ₹ ... each | XXX |
| Issued Capital | |
| ... shares of ₹ ... each | XXX |
| Subscribed Capital | |
| Subscribed but not fully paid: | |
| ... shares of ₹ ... each, ₹ ... called up | XXX |
| Less: Calls in Arrears | (XXX) |
| Subscribed and fully paid: | |
| ... shares of ₹ ... each | XXX |
| Total Share Capital | XXX |
The key distinction: Subscribed but not fully paid shows shares where the company has called up only part of the face value. Subscribed and fully paid shows shares where the entire face value has been called and received.
A Simple Example (No Invented Data)
Suppose a company issues 10,000 shares of ₹10 each, payable as: ₹3 on application, ₹3 on allotment, ₹4 on first and final call.
All applications are received and allotment is made. All money is received except one shareholder holding 100 shares fails to pay the first and final call.
Journal Entries:
-
Bank A/c Dr. ₹30,000
To Share Application A/c ₹30,000
-
Share Application A/c Dr. ₹30,000
To Share Capital A/c ₹30,000
-
Share Allotment A/c Dr. ₹30,000
To Share Capital A/c ₹30,000
-
Bank A/c Dr. ₹30,000
To Share Allotment A/c ₹30,000
-
Share First & Final Call A/c Dr. ₹40,000
To Share Capital A/c ₹40,000
-
Bank A/c Dr. ₹39,600
Calls in Arrears A/c Dr. ₹400
To Share First & Final Call A/c ₹40,000
Balance Sheet Extract:
| Subscribed but not fully paid: | |
| 10,000 shares of ₹10 each, ₹10 called up | ₹1,00,000 |
| Less: Calls in Arrears | (₹400) |
| | ₹99,600 |
A common mistake: Students often debit Share Capital when recording calls in arrears. Remember — Share Capital is credited when the call is made. Calls in Arrears is a separate debit account that reduces the net amount shown under Subscribed Capital.
The Core Idea
Share subscription accounting is simply tracking the journey of money from an investor's promise to the company's bank account — and recording any broken promises along the way. The Share Capital account always shows the total amount called up, while Calls in Arrears shows what's still missing.