application and allotment account

Quick Reference

A ledger account used in the process of applications for and allotment of a company’s share capital. When the shares are offered, potential shareholders (applicants) apply to buy them on an application form with a cheque to cover the cost of the shares. This is known as the application process. On receipt of the applicants’ money, the company debits the bank account with the cash received and credits an application and allotment account. When the shares are allocated to the applicants they become the allottees, i.e. the new shareholders; this is known as the process of allotment. The book-keeping entries on allotment involve debiting the application and allotment account and crediting the share capital or share premium, as appropriate. If the applications exceed the number of shares available, each applicant receives a scaled down number of shares and the excess application money is returned. The application and allotment account may also be split into two separate accounts: the application account and the allotment account.

Subjects: Accounting.

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