Journal entries of ESOP in the Books of

Company at following times.

1. When Employee Receives Employee Stock Option

Employee Salary / Reward Account Dr

To Employee Stock / Share Option Account

Employee Salary / Reward Account will be Debited because company has given the shares as
reward. It is expenses of company. So, all the expenses will be debit.

Employee Stock / Share Option Account will be Credited because it has increased the liability of
company. Every increase in liability will be credited.

2. When Company transfer this expenses to its profit

and loss account

Profit and Loss Account Dr

To Employee Salary / Reward Account

This journal entry has passed to written off this expense account. This entry will help to show
accurate net profit of company.

3. When company allotted shares to employees

Employee Stock / Share Option Account Dr

To Share Capital Account

( This entry will make employee real owner of company)

4. When employee sells his Employee Stock / Share

Option right to company

Employee Stock / Share Option Account Dr

To Bank Account

( company has centralized his capital power by paying cash to employee again. Employee Stock /
Share Option Account was liability by paying, it has removed from account. So, it must be debited
and Bank account has credit because it has also decreased our asset. So, decrease in asset must
be credited.