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What are share splits and what accounting entries are necessary when a share split is undertaken?

What are share splits and what accounting entries are necessary when a share split is undertaken?

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Expert Solution

Solution. First, we will define the key term - share splits. In a stock split decision, a company increases the number of shares outstanding by issuing more shares to current shareholders. Thereby, reducing the price of such stocks as the number of shares outstanding increases keeping market capitalization constant.

Share splits are usually undertaken by companies to make them available to small investors at affordable prices. And in case of increasing liquidity in the stock.

Accounting entries necessary in share split are:

Journal entries needed to be passed in share split is a memo entry to inform the number of shares which has been changed and par value per share.

Since, there is no change in total amount for par value and other components of paid-in capital along with stockholder's equity during a share split, no such entries are made and recorded. There will be no change in general ledger account balances.

ekkarill92 answered 1 year ago
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