How are restricted stock units (RSUs) accounted for, and how does the expense recognition work over the vesting period?

Restricted Stock Units (RSUs) are one of the most common forms of equity compensation today, and their accounting is actually simpler than stock options.

What is an RSU?

An RSU is a promise to deliver shares of company stock to the employee after a vesting period (typically 3-4 years). Unlike stock options, RSUs have no exercise price — the employee receives the full value of the shares upon vesting.

Measurement — No Option Model Needed

Because RSUs have no exercise price or option features, their fair value at the grant date equals the stock price (less the present value of expected dividends during the vesting period, if the employee does not receive dividends during vesting).

Fair value per RSU = Grant-date stock price (adjusted for dividends if applicable)

Worked Example — Cypress Analytics:

On January 1, 2026, Cypress grants 12,000 RSUs to its VP of Engineering:

• Grant-date stock price: $72.00
• Vesting: Cliff vesting after 3 years (all vest on December 31, 2028)
• Employee does not receive dividends during vesting
• Expected annual dividend yield: 2%
• Estimated forfeiture rate: 10%

Step 1: Fair value per RSU $72.00 × (1 − 0.02)^3 =$72.00 × 0.9412 = $67.77 (discounted for foregone dividends)

Step 2: Expected RSUs to vest 12,000 × (1 − 0.10) = 10,800 RSUs

Step 3: Total compensation expense 10,800 × $67.77 = **$731,916**

Step 4: Annual expense (straight-line over 3 years) $731,916 / 3 = **$243,972 per year**

Year	Expense	Cumulative	Journal Entry
2026	$243,972	$243,972	Dr. Compensation Expense / Cr. APIC
2027	$243,972	$487,944	Dr. Compensation Expense / Cr. APIC
2028	$243,972	$731,916	Dr. Compensation Expense / Cr. APIC

At Vesting (Dec 31, 2028): If 10,800 RSUs vest (forfeiture estimate was accurate):

• Debit: APIC — $731,916
• Credit: Common Stock (par) and APIC (excess) — $731,916

What if Actual Forfeitures Differ?

If only 800 RSUs are forfeited (vs. 1,200 estimated), then 11,200 RSUs vest:

• Additional expense = (11,200 − 10,800) × $67.77 =$27,108
• Recognized as a catch-up adjustment in Year 3

RSUs vs. Stock Options — Key Differences:

Feature	RSUs	Stock Options
Exercise price	None	Set at grant
Valuation model	Stock price	Black-Scholes/Lattice
Value if stock declines	Still has value	May become worthless
Dilution	Fewer shares needed	More shares for same value

Practice RSU accounting with our CFA Level I question bank.