JE-131 Jan 2026Adjustingposted
Recognize January's share of the grant.
| Account | Dimensions | Debit | Credit |
|---|---|---|---|
| 6700 Stock-based compensation | 3,750 US Dollar | ||
| 3100 Additional paid-in capital | 3,750 US Dollar | ||
| Totals | 3,750 US Dollar | 3,750 US Dollar | |
Balanced.
Journal entry for stock-based compensation
Each month of the service period, debit Stock-based compensation expense and credit Additional paid-in capital for the grant-date fair value of the awards divided over the vesting period. No cash moves and no liability is created for equity-classified awards.
- Total grant-date fair value
- $180,000
- Monthly expense
- $3,750
- Expensed by the cliff
- $45,000
- Entity
- Illustrative company
- Basis
- Accrual
- Currency
- USD
- Period
- January 2026
The worked example
An engineer is granted 100,000 options on January 1, 2026 with a grant-date fair value of $1.80 each, vesting over four years with a one-year cliff. The $180,000 is expensed at $3,750 a month from the grant date; $45,000 has been recognized by the cliff.
Adjusting entry · January 31, 2026
What the entries do to the accounts
Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.
| Account | Debit | Credit |
|---|---|---|
| 3100 Additional paid-in capital | 3,750 US Dollar | |
| 6700 Stock-based compensation | 3,750 US Dollar | |
| Totals | 3,750 US Dollar | 3,750 US Dollar |
Why it is booked this way
Options are pay. The company receives employee service in exchange for equity, and ASC 718 measures that pay at the awards' grant-date fair value and spreads it over the period the employee must work to earn them.
The credit goes to additional paid-in capital, not a liability, because the company settles in shares. Equity rises by exactly what the P&L was charged.
Common mistakes
- Booking nothing because no cash was paid.
- Waiting for the cliff to start expensing.
- Using the preferred share price or the strike price instead of the option's grant-date fair value.
Questions
- Does the cliff delay the expense?
- No. ASC 718 recognizes cost over the requisite service period from the grant date. A one-year cliff decides when the employee vests, not when the expense starts; if the employee leaves before the cliff, the expense booked is reversed.
- Where does the fair value come from?
- Grant-date fair value from an option-pricing model such as Black-Scholes, using the 409A value of the common stock as the share price input.
Terms on this page
Work with this entry
The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.
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An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.