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BroVo
October 1, 2023
Question

Proper Balance Sheet entries for unvested RSUs

  • October 1, 2023
  • 1 reply
  • 0 views

I need to record unvested RSUs on the balance sheet. What are the proper entries for this? Is it a Credit to Member Equity: Unearned Stock Compensation and a Debit to Payroll Liabilities: Salaries, Wages & Commissions?

1 reply

Rainflurry
Rainflurry
October 1, 2023

@BroVo 

 

The proper recording of RSUs depends on whether the recipient or the company can choose if it will be in stock or cash.  In either case, there is no entry as of the date the RSUs are granted.  The total compensation (# of shares X current market price of the stock) is entered at year-end based on the vesting period.  So, for example, if an employee is granted 100,000 shares at $10 current market price ($1,000,000 total compensation) and vested over 4 years, then the year-end entry would be $250,000/year. 

 

If the employee is to receive stock only, the JE is a debit to Compensation expense and a credit to PIC - restricted stock.  If the employee can elect to receive cash, it is considered a liability, not equity.  The journal entry is the same except the credit entry is to your Restricted stock liability account, not your PIC - restricted stock equity account.    

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BroVoAuthor
October 1, 2023

Thank you very much for the color. So are you saying that there is no entry of any kind for an employee who receives restricted stock until it vests? In other words, the grant (or in this case promise) does not appear in any of the financial statements until the stock vests?

Rainflurry
Rainflurry
October 2, 2023

@BroVo 

 

"So are you saying that there is no entry of any kind for an employee who receives restricted stock until it vests?"

 

Correct.  Until it vests, it has no impact.  If you record it prior to that, you would be booking an expense (tax deduction) for something you haven't yet incurred and reporting income to the employee for income they have not received.  Until the employee receives the stock based on the vesting schedule, there is no entry. 

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