How is the issuance of preferred stock recorded?

The issuance of preferred stock involves receiving cash from investors in exchange for ownership shares. When preferred stock is issued at a specified par value, the accounting entries reflect this transaction by debiting cash to acknowledge the increase in assets and crediting preferred stock to represent the issuance of equity.

In this context, when cash is received, it indicates an inflow of resources to the company, which is why cash is debited. The company then records the preferred stock issued, reflecting its obligation to the shareholders, hence the credit to preferred stock. This entry maintains the balance within the accounting equation, showing how the company funds itself through equity financing.

If the issuance involves amounts greater than the par value, those excess amounts would typically be credited to additional paid-in capital, but the fundamental transaction recorded for simply issuing preferred stock at par value is the debit to cash and the credit to preferred stock.