The phrase “capital surplus,” which is also known as “contributed capital,” is a financial term that can be found as an important descriptive part of a shareholder’s equity. Capital surplus effectively describes any funds that the issuing firm has received that are in excess of the par value for the common stock that was issued. In addition, capital surplus can also be used to describe profits that the issuing firm receives from the sale of treasury stocks, but this situation is less common.
If calculated together, you get the full amount actually paid by investors for the issue of shares when you combine the common stock issued and paid, plus the capital surplus. This is, of course, when there are no changes or other adjustments made after the fact.
If there are shares that do not have a designated par value, these will usually not be included in capital surplus on the balance sheet. Incoming funds from issuing shares are to be credited as common stock issued.
Essentially, then, capital surplus refers to equity that can’t accurately be considered as capital stock, nor as retained earnings. It is usually received through the sale of a stock that was issued at a premium price over the par value of the stock.
Note that investors who reside in the United Kingdom will find the term capital surplus to be synonymous with other terms, such as share premium, donated surplus, acquired surplus, paid-in surplus, and additional paid-in capital.