Journal Entries for Equity Accounts (Cambridge (CIE) AS Accounting): Revision Note
Exam code: 9706
Journal entries for equity accounts
What is the layout of an equity account?
Equity accounts include:
Ordinary share capital account
Share premium account
Revaluation account
General reserve account
Retained earnings account
Each equity account has a credit balance
They never have a debit balance
Credit entries increase the capital or reserve
Debit entries decrease the capital or reserve
How do I make journal entries for a revaluation?
Increase
STEP 1
Find the difference between the old value and the new valueFor example, a property previously valued at $800 000 has been revalued at $900 000
Difference is $900 000 - $800 000 = $100 000
STEP 2
Debit the non-current asset accountSTEP 3
Credit the revaluation reserve account
Decrease
STEP 1
Find the difference between the old value and the new valueFor example, a property previously valued at $800 000 has been revalued at $600 000
Difference is $800 000 - $600 000 = $200 000
STEP 2
Credit the non-current asset accountSTEP 3
Debit the revaluation reserve account and the retained earnings account if neededIf the difference is less than the current balance of the revaluation reserve, then you only need to debit this account
If the difference is more than the current balance of the revaluation reserve, then:
debit the revaluation reserve account with amount of the current balance
debit the retained earnings account with the excess
How do I make journal entries for common transactions?
Account to debit | Account to credit | |
|---|---|---|
Profit for the year | Statement of profit or loss | Retained earnings |
Loss for the year | Retained earnings | Statement of profit or loss |
Issue of shares at nominal value | Bank | Ordinary share capital |
Issue of shares at a premium | Bank | Ordinary share capital (the amount due to the nominal value) Share premium (the additional amount due to the share premium) |
Bonus issue of shares | Share premium And other reserves if needed (usually retained earnings) | Ordinary share capital |
Payment of dividends | Retained earnings | Bank |
Transfer from retained earnings to general reserve | Retained earnings | General reserve |
Increase of a non-current asset from a revaluation | Non-current asset | Revaluation reserve |
Decrease of a non-current asset from a revaluation | Revaluation reserve Retained earnings if needed | Non-current asset |
Worked Example
The following balances had been extracted from the books of D Limited on 1 January 2025.
$ | |
|---|---|
Share capital (ordinary shares of $0.75 each) | 600 000 |
Share premium | 130 000 |
Retained earnings | 162 000 |
Revaluation reserve | 70 000 |
During the year ended 31 December 2025, the following occurred:
30 June: An interim dividend of $0.04 per share was paid.
1 August: A rights issue of one share for every four ordinary shares held at this date was made. The shares were issued at $1 per share. The rights issue was fully subscribed.
1 November: Property was revalued at $350 000. Before this date, the property was valued at $450 000.
1 December: A bonus issue of three shares for every ten ordinary shares held at this date was made. The reserves were maintained in their most flexible form. The bonus issue was fully subscribed.
31 December: The profit for the year was $152 000.
Prepare the following ledger accounts for the year ended 31 December 2025.
Ordinary share capital account
$ | $ | ||||
|---|---|---|---|---|---|
Share premium account
$ | $ | ||||
|---|---|---|---|---|---|
Retained earnings account
$ | $ | ||||
|---|---|---|---|---|---|
Revaluation reserve account
$ | $ | ||||
|---|---|---|---|---|---|
Answer:
30 June
Calculate the number of shares held at the start of the year
$600 000 ÷ $0.75 = 800 000 shares
Calculate the total dividends paid
800 000 × $0.04 = $32 000
1 August
Calculate the number of new shares issued in the rights issue
800 000 ÷ 4 = 200 000 shares
Calculate the total received from the rights issue
200 000 × $1 = $200 000
Calculate the increase in the ordinary share capital
200 000 × $0.75 = $150 000
Calculate the increase in the share premium
$200 000 - $150 000 = $50 000
1 November
Calculate the decrease in value of the property
$450 000 - $350 000 = $100 000
Calculate the excess needed from the retained earnings
$100 000 - $70 000 = $30 000
1 December
Calculate the total number of shares before the bonus issue
800 000 + 200 000 = 1 000 000 shares
Calculate the number of new shares issued in the bonus issue
1 000 000 ÷ 10 × 3 = 300 000 shares
Calculate the increase in the ordinary share capital
300 000 × $0.75 = $225 000
Calculate the balance of the share premium account
$130 000 + $50 000 = $180 000
Calculate the additional amount needed from the retained earnings
The share premium account should be used up before moving to the retained earnings account
$225 000 - $180 000 = $45 000
Enter the transactions into the accounts and bring down the balances
The share premium account and revaluation account won't have a balance to bring down
31 December
Ordinary share capital account
$ | $ | ||||
|---|---|---|---|---|---|
2025 | 2025 | ||||
Dec 31 | Balance c/d | 975 000 | Jan 1 | Balance b/d | 600 000 |
Aug 1 | Bank | 150 000 | |||
Dec 1 | Share premium | 180 000 | |||
| Retained earnings | 45 000 | |||
975 000 | 975 000 | ||||
2026 | |||||
Jan 1 | Balance b/d | 975 000 |
Share premium account
$ | $ | ||||
|---|---|---|---|---|---|
2025 | |||||
Dec 1 | Ordinary share capital | 180 000 | Jan 1 | Balance b/d | 130 000 |
| Aug 1 | Bank | 50 000 | ||
180 000 | 180 000 |
Retained earnings account
$ | $ | ||||
|---|---|---|---|---|---|
2025 | 2025 | ||||
Jun 30 | Bank | 32 000 | Jan 1 | Balance b/d | 162 000 |
Nov 1 | Property | 30 000 | Dec 31 | Statement of profit or loss | 152 000 |
Dec 1 | Ordinary share capital | 45 000 | |||
Dec 31 | Balance c/d | 207 000 |
| ||
314 000 | 314 000 | ||||
2026 | |||||
Jan 1 | Balance b/d | 207 000 |
Revaluation reserve account
$ | $ | ||||
|---|---|---|---|---|---|
2025 | 2025 | ||||
Nov 1 | Property | 70 000 | Jan 1 | Balance b/d | 70 000 |
70 000 | 70 000 |
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