Difference between Authorized and Issued Capital

Difference between Authorized and Issued Capital

Authorized Capital

Authorized Capital is the total amount of capital a company can issue and this amount is specifically mentioned in its memorandum.

It is pertinent to note that there is no entry for authorized capital in the book of accounts. However the authorized amount may be reported in financial statement for information purposes.

Issued Capital

Capital which offers to public for subscription is called issued capital.  Issued capital may be equal or less than authorized capital.

Example

A Company ABC has authorized capital 100,000 @ 10 $ = 1,000,000 but the company decided to issue a 20,000 shares. In this case the authorized Capital is 1,000,000 and issued capital is $ 200,000 (20,000 @ $10). What would Journal entry be for authorized and issued capital?

Solution

Bank                                    200,000 (Dr)

Issued Capital                     200,000 (Cr)