Treasury Stock Transactions: Accounting, Reporting, and Practical Implications
- Graziano Stefanelli
- 4 hours ago
- 3 min read
1. Introduction
Treasury stock refers to a corporation’s own shares that were issued and later reacquired but not retired. These shares are held in the company’s treasury and may be reissued or retired at a later date. Accounting for treasury stock transactions is important because such actions directly affect a company’s stockholders’ equity, earnings per share, and financial ratios.
2. Definition of Treasury Stock
Treasury stock consists of shares that were previously issued and outstanding but have been bought back by the issuing corporation. These shares have no voting rights and are not entitled to dividends while held by the company. Treasury stock is presented as a deduction from total stockholders’ equity on the balance sheet.
3. Reasons for Repurchasing Shares
Corporations may repurchase their own stock for several reasons:
To return surplus cash to shareholders
To increase earnings per share (EPS) by reducing the number of shares outstanding
To have shares available for employee compensation or stock option plans
To support the stock price during periods of perceived undervaluation
To alter the company’s capital structure or defend against takeovers
4. Accounting Methods for Treasury Stock
There are two primary methods for accounting for treasury stock:
Cost Method (most common): Treasury stock is recorded at the cost paid to reacquire the shares.
Par Value (Legal Capital) Method: Treasury stock is recorded at its par (or stated) value, with any excess cost charged or credited to other equity accounts.
This article focuses on the cost method, as it is widely used under both US GAAP and IFRS.
5. Recording the Purchase of Treasury Stock
When a company buys back its own shares, treasury stock is debited for the total cost, and cash is credited for the same amount.
Example Journal Entry:
Company repurchases 1,000 shares at $15 per share:
Dr. Treasury Stock ($15 × 1,000) ............. $15,000
Cr. Cash ...................................................... $15,000
No gain or loss is recognized on the purchase of treasury stock.
6. Reissuance of Treasury Stock Above Cost
If treasury shares are later reissued at a price higher than their repurchase cost, the difference is credited to Additional Paid-In Capital—Treasury Stock.
Example Journal Entry:
Company reissues 500 treasury shares at $18 per share (original cost was $15):
Dr. Cash ($18 × 500) ................................... $9,000
Cr. Treasury Stock ($15 × 500) .................... $7,500
Cr. APIC—Treasury Stock ............................. $1,500
7. Reissuance of Treasury Stock Below Cost
If treasury shares are reissued at a price lower than their repurchase cost, the difference is debited first to APIC—Treasury Stock (if available), and then to Retained Earnings if the APIC balance is insufficient.
Example Journal Entry:
Company reissues 500 treasury shares at $13 per share (original cost was $15):
Dr. Cash ($13 × 500) ................................... $6,500
Dr. APIC—Treasury Stock .............................. $1,000 (if available)
Dr. Retained Earnings ................................. $500 (if needed)
Cr. Treasury Stock ($15 × 500) .................... $7,500
8. Retirement of Treasury Stock
If a company retires treasury stock (permanently cancels the shares), the original issue price and any related APIC are removed from equity. Any difference between the cost and the original issue price is adjusted through APIC or retained earnings.
9. Effect on Stockholders’ Equity
Treasury stock transactions always result in a reduction of total stockholders’ equity, as treasury shares are presented as a contra equity account (negative value). Treasury stock is not considered an asset and does not impact net income.
10. Disclosure and Financial Statement Presentation
Treasury stock is reported as a deduction from total stockholders’ equity on the balance sheet.
Companies must disclose the number of shares held as treasury stock, their cost, and changes during the period in the notes to the financial statements.
11. Regulatory and Accounting Guidance
US GAAP: ASC 505-30 (Treasury Stock)
IFRS: IAS 32 (Financial Instruments: Presentation), which requires similar treatment.
Both standards prohibit recognizing gains or losses on treasury stock transactions in the income statement; all effects are reflected within equity.
12. Summary Table
Action | Journal Entry Example | Impact on Equity |
Repurchase | Dr. Treasury Stock / Cr. Cash | Decreases equity |
Reissue above cost | Dr. Cash / Cr. Treasury Stock, Cr. APIC—Treasury Stock | Increases equity |
Reissue below cost | Dr. Cash, Dr. APIC or Retained Earnings / Cr. Treasury Stock | Increases equity (less APIC/RE) |
Retirement | Remove related equity accounts; adjust APIC/RE as needed | Decreases shares outstanding |
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