additional paid-in capital
/ A-P-I-C /
Suppose a company prints shares stamped with a par value of 1, but investors are happy to pay 30 each for them. Where does the extra 29 per share go on the books? It cannot all sit in the Common Stock account, which by rule only holds the par amount. The leftover — the amount investors paid above par — is collected in a bucket called additional paid-in capital. It is simply the premium owners paid over the nominal par value.
Additional paid-in capital (often abbreviated APIC, and called 'share premium' under IFRS) is a component of contributed capital — money that owners put into the company, as opposed to profits the company earned. When a company issues 1,000 shares at 30 each with a par value of 1, it records cash of 30,000, splits it into Common Stock of 1,000 (par) and additional paid-in capital of 29,000 (the excess). Together, Common Stock plus APIC equals the total paid in by shareholders for those shares. APIC can also arise from other equity transactions, such as reissuing treasury stock above its cost.
This account matters because it keeps two ideas cleanly separate on the balance sheet: the nominal legal capital (par) and the real economic amount investors contributed. A common confusion is to treat APIC as profit or earnings — it is not. It is money received from owners for their shares, never income earned from running the business. That earned portion lives in a completely different account: retained earnings.
A company issues 2,000 shares at 25 each; par is 1. It records cash 50,000, Common Stock 2,000 (2,000 x 1), and additional paid-in capital 48,000 (the 24 per share above par). Total contributed capital from this issue is 50,000.
APIC captures every dollar paid above par when shares are issued.
APIC is money from owners, not profit. Do not confuse it with retained earnings, which is profit the business has earned and kept. Both sit in equity but come from very different sources.