Where the number of subscribers is large and especially if record must be made of the payment of calls, a Subscription Ledger or Instalment Book is used. This ledger has no set form but usually carries columns showing when the calls are to be made, when actually made, when paid, and the balance still due. A controlling account called “Subscribers” or “Subscription” is carried on the general ledger, with a special column in the cash book to gather the totals for posting.
The Stock Certificate Book and Stock Ledger.—A subscriber is, as such, a stockholder in the corporation even though his stock certificate may not yet have been issued to him. The stock certificate is merely evidence of ownership. It is usually issued from a book with perforated leaves similar to a check book, with stub to carry the essential data of the certificate. Directly from this stub, or through the medium of a stock journal, postings are made to the individual accounts in the stock ledger. This ledger which, in turn, is controlled by the Capital Stock account or accounts on the general ledger, carries the detailed information as to the number of shares issued, shares canceled, and balances held by each owner.
The Stock Transfer Book.—In the state of New York a stock transfer book must be kept, showing all the data in connection with transfers of shares, such as old and new stock certificate numbers, names of the parties, etc.
The Minute Book.—To preserve a record of the meetings of the directors and stockholders, and the business transacted thereat, use is made of a minute book kept by the secretary. This book, as the source of authority for all the important acts and policies of the corporation, is a most important record. The record should be a complete history of the corporation from its organization through the entire period of its existence.
Other Records.—When the stock is sold on the instalment plan, formal receipt of the payment of each instalment is sometimes made by means of an “Instalment Scrip Book,” whose certificates or receipts are issued upon payment of each instalment. When full payment has been made, the instalment certificates are exchanged for the regular certificates of stock. A dividend book for recording the payment of dividends is sometimes kept, though the need for such a record has been largely eliminated through the use of dividend checks.
CHAPTER XXXIX
OPENING THE CORPORATION BOOKS
Corporation Accounting Records.—The method of recording the ordinary business transactions of a corporation is essentially the same as in the types of business organization previously discussed. The opening and closing of corporation accounts, however, as also the method of making the periodic summarization, call for the special treatment given in this chapter and the next.
Proprietorship and Capital Stock.—As stated before, the members of a stock corporation have their ownership evidenced by certificates of stock. The proprietorship or net worth of a corporation, as of the single proprietorship and partnership, is the excess of its assets over its liabilities. This excess is shown in the books by two accounts or two groups of accounts, viz., the Capital Stock account—or accounts—which represents the amount of outstanding shares; and the Surplus account—subdivided and carried under other titles, if desirable—which represents the excess of the proprietorship over the amount of capital stock. Each stockholder’s share in the corporation is determined by the number of shares he possesses.
Common and Preferred Stock.—There may be various classes of stock. If only one kind is authorized at the beginning, the subsequent creation of other kinds requires an amendment of the charter. The usual classes of stock are common and preferred. As its name indicates, preferred stock has some kind of preference over the common or ordinary stock. This preference may be only in regard to dividends, or it may include preference as to ownership in the net assets in case of dissolution. Preferred stock usually carries a fixed dividend, payable before any dividend can be paid to the common stockholders.
Preferred stock is classified as cumulative and non-cumulative. The terms apply to the dividend liability of the corporation in the event that the continuity of dividend declarations is broken. The dividend on cumulative preferred stock accumulates and becomes a preferred claim for the amount accumulated since the time of the last dividend declaration. That is, the common shareholders are not entitled to receive any dividend until the preferred shareholders have received the amount of the accumulated total. Preferred stock that is non-cumulative does not possess this feature. A dividend once passed on such stock is not a preferred claim to profits as compared with the dividend rights of common stockholders, but lapses completely. Preferred stock is cumulative unless specified to the contrary.