# Equity on the books: stock, SAFEs, notes and stock comp

> The entries behind every raise: stock at par and APIC, a SAFE as a liability and its conversion, a note's interest, and stock-based compensation — in Northwind's cents.

Source: https://lopifi.com/learn/equity-accounting-journal-entries
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**How do you record a SAFE, a convertible note, a stock issuance and stock-based compensation in the books?** The entries behind every raise: stock at par and APIC, a SAFE as a liability and its conversion, a note's interest, and stock-based compensation — in Northwind's cents.

Money raised is never revenue. Shares sold go to [Equity](https://lopifi.com/md/glossary/equity); a SAFE usually waits as a [Liability](https://lopifi.com/md/glossary/liability); a note is debt; options become an expense. Each is a [journal entry](https://lopifi.com/md/glossary/journal-entry), and each has to agree with the cap table on the same day.

> **Raise money, and the balance sheet moves; grant options, and the P&L does. Neither is revenue.**

## Issuing stock

Northwind's course chart has one equity account for paid-in capital, so JE-1 credits $60,000 to 3000 Common stock. A ledger with an [APIC](https://lopifi.com/md/glossary/apic) account splits it: shares × par to common stock, the rest to additional paid-in capital.

*[Journal entries: JE-1]*

As the accounting track posts it.

— [ASC 505](https://asc.fasb.org/505/tableOfContent), Equity

## The SAFE

A SAFE is not stock yet and it is not revenue. Because it can settle in a variable number of shares and can pay cash in a sale, it is usually classified as a liability under ASC 480 — the terms decide, so have a CPA confirm it once and write it down. A liability under ASC 480 is generally measured at fair value, so audited companies may [remeasure](https://lopifi.com/md/glossary/remeasurement) it each reporting date.

— [ASC 480-10 — Distinguishing Liabilities from Equity](https://asc.fasb.org/480/tableOfContent), Why a SAFE usually sits with the liabilities until it converts

## A convertible note

A note is debt under ASC 470-20 until it converts, with any embedded conversion feature assessed for separate accounting under ASC 815-15. Interest accrues monthly; at conversion the principal and accrued interest come off together.

— [ASC 470-20 — Debt with Conversion and Other Options](https://asc.fasb.org/470/tableOfContent), A convertible note is debt until it converts

## Stock-based compensation

— [ASC 718 — Compensation—Stock Compensation](https://asc.fasb.org/718/tableOfContent), Equity awards are an expense, measured at grant-date fair value — and move no cash

| Line | Amount |
| --- | --- |
| Common stock, at par | $80 |
| Series Seed preferred stock, at par | $29.14 |
| Additional paid-in capital | $2,309,890.86 |
| Total paid-in capital | $2,310,000 |

Paid-in capital after the Seed, from the entries above (stock compensation aside).

*[Figure: double entry]*

Illustrative: every raise is two sides of one entry — cash, and the claim it creates.

**Wrong:** Credit revenue, or credit common stock, when the SAFE money arrives.

**Right:** Credit SAFE liability until it converts; then preferred stock and APIC.

Revenue overstates the year; common stock claims shares that don't exist yet.

## Where this lesson's rules come from

- [ASC 505](https://asc.fasb.org/505/tableOfContent) — Equity (codification)
- [ASC 480-10 — Distinguishing Liabilities from Equity](https://asc.fasb.org/480/tableOfContent) — Why a SAFE usually sits with the liabilities until it converts (codification)
- [ASC 470-20 — Debt with Conversion and Other Options](https://asc.fasb.org/470/tableOfContent) — A convertible note is debt until it converts (codification)
- [ASC 815-15 — Embedded Derivatives](https://asc.fasb.org/815/tableOfContent) — When a conversion feature has to be split out of the note (codification)
- [ASC 718 — Compensation—Stock Compensation](https://asc.fasb.org/718/tableOfContent) — Equity awards are an expense, measured at grant-date fair value — and move no cash (codification)

## Read further

- https://lopifi.com/md/journal-entries/issuing-common-stock
- https://lopifi.com/md/journal-entries/stock-based-compensation
- https://lopifi.com/md/journal-entries/accrued-interest
- https://lopifi.com/md/startups/how-to-account-for-safes
- https://lopifi.com/md/startups/stock-options-409a-and-vesting
- https://lopifi.com/md/accounting/safe
- https://lopifi.com/md/accounting/convertible-note
- https://lopifi.com/md/accounting/asc-718

- **Track:** [Cap tables & raising](https://lopifi.com/md/learn/equity)
- **Lesson:** Lesson 8 of 10 — 10 min
- **Terms taught:** [APIC](https://lopifi.com/md/glossary/apic), [Par value](https://lopifi.com/md/glossary/par-value), [SAFE](https://lopifi.com/md/glossary/safe), [Convertible note](https://lopifi.com/md/glossary/convertible-note), [Stock-based compensation](https://lopifi.com/md/glossary/stock-based-compensation), [Equity](https://lopifi.com/md/glossary/equity), [Liability](https://lopifi.com/md/glossary/liability)
- **Previous:** [Rule 701 for employee equity, Cap table · Lesson 7](https://lopifi.com/md/learn/securities-law-for-startup-fundraising/rule-701-employee-equity)
- **Next:** [QSBS (Section 1202) and secondary sales, Cap table · Lesson 9](https://lopifi.com/md/learn/qsbs-section-1202)
- **The course:** https://lopifi.com/md/learn