Accounting for Treasury Stock
- Graziano Stefanelli
- 15 minutes ago
- 3 min read
Treasury stock represents a company’s own issued shares that have been repurchased but not retired. These shares are held in the company’s treasury and are not considered outstanding for purposes of dividends, voting, or EPS calculations. The accounting for treasury stock affects both the balance sheet and equity structure, and requires careful adherence to corporate governance and regulatory requirements.
Methods of Accounting for Treasury Stock
There are two primary methods for accounting for treasury stock:
Cost Method: The most common approach in practice and required under US GAAP. Treasury shares are recorded at the price paid to reacquire them.
Par Value Method: Treasury shares are recorded at their par (or stated) value, with additional amounts allocated between paid-in capital and retained earnings.
US GAAP permits both methods, but the cost method is overwhelmingly preferred for its simplicity and clarity.
Cost Method: Recognition and Measurement
When shares are repurchased, treasury stock is debited at cost, reducing total shareholders’ equity.
When treasury shares are reissued or retired, the difference between the cost and any proceeds is recorded in additional paid-in capital (APIC – treasury stock) or, if a deficit exists, in retained earnings.
Example: Repurchase of Shares
Company repurchases 1,000 shares at $15 each.
Dr. Treasury Stock ............... $15,000
Cr. Cash ................................ $15,000
Reissuance above cost: Shares reissued at $18
Dr. Cash .............................. $18,000
Cr. Treasury Stock ................... $15,000
Cr. APIC – Treasury Stock .......... $3,000
Reissuance below cost: Shares reissued at $13
Dr. Cash .............................. $13,000
Dr. APIC – Treasury Stock .......... $2,000
Cr. Treasury Stock ................... $15,000
If APIC – Treasury Stock is insufficient, further shortfalls are charged to retained earnings.
Par Value Method: Recognition and Measurement
At repurchase, treasury stock is recorded at par value.
Amounts paid over par are deducted from APIC and then retained earnings, if needed.
Used less frequently due to increased complexity and less transparency regarding share repurchase cost.
Financial Statement Presentation
Treasury stock is presented as a contra-equity account, deducted from total shareholders’ equity.
Treasury shares are not included in shares outstanding for EPS, dividend, or voting purposes.
No gain or loss is recognized on treasury stock transactions in the income statement—equity accounts are adjusted instead.
Legal and Regulatory Considerations
Some jurisdictions limit the amount or circumstances under which treasury stock can be held.
Treasury shares do not carry voting or dividend rights.
Companies must disclose the number of shares held in treasury and any restrictions on their reissuance or resale.
Retirement of Treasury Shares
If treasury shares are retired, the original amounts in common stock and APIC related to those shares are removed from equity, and any difference between the repurchase cost and original issue proceeds is charged or credited to APIC or retained earnings.
Relevant Accounting Standards
US GAAP: ASC 505-30 – Treasury Stock
IFRS: IAS 32 – Financial Instruments: Presentation (IFRS prohibits gain/loss recognition and mandates deduction from equity)
Summary Table: Treasury Stock Accounting (Cost Method)
Transaction | Entry | Equity Effect |
Repurchase | Dr. Treasury Stock / Cr. Cash | Decreases total equity |
Reissue above cost | Dr. Cash / Cr. Treasury Stock / Cr. APIC | Increases equity |
Reissue below cost | Dr. Cash / Dr. APIC (and RE if needed) / Cr. Treasury Stock | Decreases APIC/RE, restores equity |
Retirement | Remove at original amounts, adjust APIC/RE for difference | Removes shares from all accounts |
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