Accounting for Warrants Exercise

posted Feb 26, 2013, 12:29 PM by Andrey Mozuliov

Warrant is a derivative security that gives the holder the right to purchase securities from the issuer at a specific price within a certain time frame.[1] That definition comes from . Than, the source suggests that warrants are often attached to shares as a sort of premium for investors.

The procedure of the exercise starts when the holder submits his warrants accompanied with the cheque (or other form of payment) to the issuer for an exercise.

At that point, in Simply Accounting, we generate selling invoice with the immediate payment by cheque (or other form of payment). 

Use warrant number for the invoice number. 

For the item description disclose number of warrants, price, and indicate the reference to the private placement the warrant was attached to. The invoice would generate the journal entry increasing Cash account (debit) and increasing Common Shares account (credit).

Tip 1. Instead of recording warrant exercise directly to Common Shares account, you may want to create separate account (Warrants exercise) in Equity section. That would allow you monitoring of the total amount of exercises during the reporting period. In this case, you should close this account balance to Common Shares account at the end of the reporting period in order to reset for the new period.

Tip 2. You can use the identical procedure for stock based compensation options issued by the company to employees and consultants. Again, it may be useful to create a separate account for options exercise similar to the one we mentioned in Tip 1.