Is Common Stock a Debit or Credit?
Common stock is a credit. Issuing shares increases equity, so the account increases with a credit when stock is issued and is rarely debited except on a retirement of shares. Its normal balance is a credit, and it is reported on the balance sheet at par or stated value, with anything above that in additional paid-in capital.
- Account category
- Equity
- Normal balance
- Credit (Cr)
- Increases with
- Increase (Cr)
- Decreases with
- Decrease (Dr)
- Financial statement
- Balance sheet
- Contra account
- Treasury stock
Classifying one account is easy. Ledger IQ classifies the whole trial balance.
Try it freeCommon stock on a trial balance
| Acct # | Account | Debit | Credit |
|---|---|---|---|
| 1000 | Cash | 48,200.00 | |
| 1200 | Accounts receivable | 86,400.00 | |
| 1250 | Allowance for doubtful accounts | 4,200.00 | |
| 1300 | Inventory | 72,500.00 | |
| 1400 | Prepaid expenses | 9,800.00 | |
| 1450 | Notes receivable | 15,000.00 | |
| 1460 | Due from shareholder | 12,000.00 | |
| 1500 | Equipment | 120,000.00 | |
| 1510 | Accumulated depreciation | 38,000.00 | |
| 1700 | Goodwill | 40,000.00 | |
| 1710 | Accumulated amortization | 8,000.00 | |
| 2000 | Accounts payable | 31,500.00 | |
| 2050 | Credit card payable | 6,300.00 | |
| 2100 | Accrued expenses | 11,200.00 | |
| 2150 | Payroll liabilities | 7,400.00 | |
| 2200 | Sales tax payable | 4,100.00 | |
| 2300 | Unearned revenue | 18,000.00 | |
| 2400 | Notes payable | 85,000.00 | |
| 2450 | Due to shareholder | 20,000.00 | |
| 3000 | Common stock (the account this page is about) | 50,000.00 | |
| 3100 | Additional paid-in capital | 35,000.00 | |
| 3900 | Retained earnings | 92,000.00 | |
| 3950 | Shareholder distributions | 45,000.00 | |
| 4000 | Sales revenue | 550,000.00 | |
| 4100 | Sales returns and allowances | 12,000.00 | |
| 4200 | Interest income | 1,200.00 | |
| 5000 | Cost of goods sold | 240,000.00 | |
| 6000 | Salaries and wages | 96,000.00 | |
| 6050 | Officer compensation | 60,000.00 | |
| 6100 | Rent expense | 36,000.00 | |
| 6150 | Insurance expense | 14,400.00 | |
| 6300 | Depreciation expense | 19,000.00 | |
| 6450 | Interest expense | 6,800.00 | |
| 6900 | Other operating expenses | 28,800.00 | |
| Total | 961,900.00 | 961,900.00 |
Example journal entries
| Account | Debit | Credit |
|---|---|---|
| Cash | 85,000.00 | |
| Common stock | 1,000.00 | |
| Additional paid-in capital | 84,000.00 |
| Account | Debit | Credit |
|---|---|---|
| Equipment | 40,000.00 | |
| Common stock | 500.00 | |
| Additional paid-in capital | 39,500.00 |
Why it works that way
Shareholders put money in and the company owes that stake back to them in the sense that it belongs to them, not to the business. Owner claims are equity, equity sits on the right side of the accounting equation, and the right side increases with credits.
The account is unusual in how little it moves. For most closely held companies, common stock is set once at formation and never changes again. A trial balance where it moves every year is worth questioning.
Par value and why there are two accounts
If the stock has a par or stated value, the issue price is split: par value to common stock, everything above par to additional paid-in capital. A 1,000 share issue of $1 par stock sold for $85,000 puts $1,000 in common stock and $84,000 in APIC.
It looks like a formality and it has a practical consequence on the return. Schedule L has separate lines for common stock and for additional paid-in capital, so books that lump the whole $85,000 into one account cannot fill them in correctly without going back to the formation documents.
Many states allow no par stock, in which case the entire amount sits in common stock and the APIC line is empty. Both presentations are fine as long as they match the corporate records.
What is not common stock
Shareholder loans. Money lent to the company is a liability, due to shareholder, not stock. The distinction drives basis and whether repayment is taxable.
Later capital injections. Cash put in after formation without issuing shares is usually additional paid-in capital, not an increase in common stock.
S corporation basis. Stock basis is a shareholder level computation, tracked on Form 7203, not the balance in this account. They start at the same place and diverge immediately as income, losses and distributions flow through.
The practical problem on a client trial balance
Equity is the section small business bookkeeping handles worst. Common patterns: a single equity account holding stock, contributions and distributions together; a common stock balance that was never recorded at all, with the original $1,000 sitting in retained earnings; or a figure that disagrees with the share register.
None of it is hard to fix, but it does require the corporate documents rather than the general ledger, and it is worth sorting out once rather than carrying the same wrong figure forward for a decade.
Where it fits in the accounting equation
Tax return treatment
| Form | Line |
|---|---|
| Form 1120 | Schedule L line 22a, common stock |
| Form 1120S | Schedule L line 22a, common stock |
| Form 1065 | Not applicable. A partnership reports partner capital accounts on line 21 |
Common questions
Is common stock a debit or credit?
A credit. It is an equity account, so issuing shares credits it. It is debited only when shares are formally retired. Treasury stock, which is shares bought back and held, is recorded in its own contra equity account with a debit balance.
What is the difference between common stock and additional paid-in capital?
Common stock holds the par or stated value of the shares issued. Additional paid-in capital holds everything paid above par. Schedule L reports them on separate lines, which is why books that record a single combined figure cannot complete the balance sheet without the formation documents.
Does common stock change when a shareholder puts more money in?
Usually not. Unless new shares are issued, a later contribution goes to additional paid-in capital. Money lent to the company is neither; it is a shareholder loan and belongs in liabilities.
Is my common stock balance the same as my S corporation stock basis?
No. They start together and separate immediately. Stock basis is a shareholder level figure that moves with income, losses, distributions and nondeductible expenses, and it is tracked on Form 7203 rather than on the company balance sheet.
Related answers
Last reviewed October 17, 2026.