How-to
How to calculate ASC 718 stock-comp expense
The ASC 718 recognition model
Under ASC 718, you measure the grant-date fair value of an award, then recognize it as compensation expense over the requisite service period: usually the vesting period. Options are valued with a model such as Black-Scholes; RSUs are typically valued at the share price. The remaining decisions are the attribution method and how you handle forfeitures.
Straight-line expense
Period expense = Grant-date fair value ÷ Vesting period
Under straight-line attribution, total grant-date fair value is recognized evenly across the vesting period. Graded (accelerated) attribution front-loads expense by treating each vesting tranche separately: the choice materially changes early-period expense.
The decisions that drive the number
| Decision | Options | Effect |
|---|---|---|
| Valuation model | Black-Scholes, lattice | Sets grant-date fair value |
| Attribution | Straight-line vs graded | Timing of expense |
| Forfeitures | Estimate vs as-incurred | Smooths or trues-up expense |
| Modifications | Repricings, extensions | Incremental expense |
A worked example
- 1.Determine grant-date fair value with the appropriate model.
- 2.Choose straight-line or graded attribution.
- 3.Recognize expense over the requisite service period.
- 4.Apply your forfeiture policy and true up on departures.
- 5.Post the periodic journal entries to expense and paid-in capital.
How Fintra calculates ASC 718 expense
Fintra computes ASC 718 stock-comp expense straight from the cap table: it values grants, spreads expense over vesting under your chosen attribution method, applies your forfeiture policy, and generates the journal entries. Because it reads the same vesting schedules and 409A fair values used for exercises and dilution, the expense ties out to your equity records with no separate spreadsheet to reconcile.
- Grant-date fair valuation with straight-line or graded attribution
- Forfeiture handling with automatic true-up on departures
- Journal entries generated for each period
- Expense tied to the same vesting and 409A data as the cap table
Questions people ask
How is stock-comp expense measured under ASC 718?
At grant-date fair value, options valued with a model like Black-Scholes and RSUs typically at the share price, recognized as expense over the requisite service period, which is usually the vesting period.
What is the difference between straight-line and graded attribution?
Straight-line spreads the total grant-date fair value evenly over the vesting period. Graded attribution treats each vesting tranche separately, front-loading expense. The choice materially changes how much expense lands in the early periods.
How are forfeitures handled under ASC 718?
You may estimate forfeitures up front or recognize them as they occur. When an employee leaves before vesting, previously recognized expense on their unvested awards reverses, so accurate vesting and departure tracking is essential.
What journal entry records stock-comp expense?
Typically a debit to stock-based compensation expense and a credit to additional paid-in capital for each period’s recognized amount. Generating these from the cap table keeps expense reconciled to your equity records.
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Book stock-comp expense that ties out
Valuation, attribution, and journal entries from your cap table.