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In accounting when the term paid in capital account is used what does this mean?

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August 21, 2007 4:27PM

A dictionary definition is given by

"Paid-in capital represents the amounts paid to the corporation in exchange for shares of the company's preferred and common stock."[1 (reference given below)] [2]

But what is the context? I am learning this myself and what i have encountered is a balance sheet entry. One should remember that generally balance sheet entries represent ACCOUNTS (i.e. they are accumulative). Thus for example if the year 2006 entry for paid-in capital is $1000 and the year 2005 entry is $900 then that means that $100 was paid in 2006 by someone for stock. (Actual story is a bit more complicated: The $100 represents part of the amount paid-in for stock, namely the part in excess of par value. )

REFERENCES

[1] http://www.britannica.com/eb/topic-438420/paid-in-capital

[2] http://en.wikipedia.org/wiki/Paid_in_capital