When shares are forfeited, the amount called up on the forfeited shares is debited to the Share Capital Account. This is because the company loses the right to receive the unpaid call money from the shareholder, and thus the Share Capital Account is debited by the called-up amount on the forfeited shares. Summary of the accounting treatment:
- Share Capital Account is debited with the called-up amount on forfeited shares.
- The Share Forfeiture Account is credited with the amount received on the forfeited shares.
- Calls in arrears or Share Calls Account is credited with the unpaid amount.
- The entry reflects the cancellation of the shares due to non-payment or default by the shareholder.
This treatment applies regardless of whether the shares were issued at par or premium, with some adjustments for premium received or receivable when applicable. Hence, the direct answer is: The called-up amount on forfeited shares is debited to the Share Capital Account.
