Booking Stock Compensation Expense

Sbc issued to direct labor is allocated to cost of goods sold.

Booking stock compensation expense. This expense reduces the net income. Stock compensation should be recorded as an expense on the income statement. Expected total stock option compensation 6 300 vesting period 3 years service period completed 3 years cumulative expense at end of year 3 6 300 x 3 3 6 300 previously recognized expense 5 600 stock option compensation expense for year 3 700.

Pwc s accounting and financial reporting guide stock based compensation discusses the principles in accounting for stock compensation and includes illustrative examples in areas that include the following. Rather than recording the expense as the current stock price the business must calculate the fair market value of the stock option. The accountant will then book accounting entries to record compensation expense the exercise of stock options and the expiration of stock options.

Stock based compensation also called share based compensation or equity compensation is a way of paying employees and directors of a company with shares of ownership in the business. If the circumstances later indicate that the number of instruments to be granted has changed recognize the change in compensation cost in the period in which the change in estimate occurs. Measurement date vesting conditions expense attribution and classification i e liability or equity.

Stock compensation is a way corporations use stock or stock options to reward employees in lieu of cash. It is typically used to motivate employees beyond their regular cash based compensation and to align their interests with those of the company. Under us gaap stock based compensation sbc is recognized as a non cash expense on the income statement.

If the options vested immediately the company would record a compensation expense of 10 000 10 per share x 1 000 shares. How financial statements are presented is your prerogative but you must include all stock based compensation when distributing statements to your stockholders. Also note that facebook has provided the breakup of stock based compensation included under each cost and expense item.

Stock compensation is often subject to a vesting period before it can be collected and sold. If stock option grants expire unused do not reverse the related amount of compensation expense. Overall in 2016 facebook included 3 218 million worth of stock based compensation.