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Title : Journal Entries of ESOP
link : Journal Entries of ESOP
Journal Entries of ESOP
Before passing the journal entries of ESOP, you should know about ESOP. It means employee stock option plan. As per this plan, company gives his share to employees and employees become the owner of same company. It encourage employees to work hard for same company for getting this reward.
Journal entries will pass in the Books of Company at following times.
1. When Employee Receives Employee Stock Option
Employee Salary / Reward Account Debit
Employee Stock / Share Option Account Credit
Employee Salary / Reward Account will be Debited because company has given the shares as reward. It is expenses of company. So, all the expenses will be debit.
Employee Stock / Share Option Account will be Credited because it has increased the liability of company. Every increase in liability will be credited.
2. When Company transfer this expenses to its profit and loss account
Profit and Loss Account Debit
Employee Salary / Reward Account Credit
This journal entry has passed to written off this expense account. This entry will help to show accurate net profit of company.
3. When company allotted shares to employees
Employee Stock / Share Option Account Debit
Share Capital Account Credit
( This entry will make employee real owner of company)
4. When employee sells his Employee Stock / Share Option right to company
Employee Stock / Share Option Account Debit
Bank Account Credit
( company has centralized his capital power by paying cash to employee again. Employee Stock / Share Option Account was liability by paying, it has removed from account. So, it must be debited and Bank account has credit because it has also decreased our asset. So, decrease in asset must be credited.
Journal entries will pass in the Books of Company at following times.
1. When Employee Receives Employee Stock Option
Employee Salary / Reward Account Debit
Employee Stock / Share Option Account Credit
Employee Salary / Reward Account will be Debited because company has given the shares as reward. It is expenses of company. So, all the expenses will be debit.
Employee Stock / Share Option Account will be Credited because it has increased the liability of company. Every increase in liability will be credited.
2. When Company transfer this expenses to its profit and loss account
Profit and Loss Account Debit
Employee Salary / Reward Account Credit
This journal entry has passed to written off this expense account. This entry will help to show accurate net profit of company.
3. When company allotted shares to employees
Employee Stock / Share Option Account Debit
Share Capital Account Credit
( This entry will make employee real owner of company)
4. When employee sells his Employee Stock / Share Option right to company
Employee Stock / Share Option Account Debit
Bank Account Credit
( company has centralized his capital power by paying cash to employee again. Employee Stock / Share Option Account was liability by paying, it has removed from account. So, it must be debited and Bank account has credit because it has also decreased our asset. So, decrease in asset must be credited.
Thus Article Journal Entries of ESOP
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