Treasury stock accounting
Treasury stock does not represent an asset to the company, but rather a reduction in stockholders equity. Cash or other assets are used to reduce stockholders equity by purchasing treasury stock. Treasury stock is stock taken off the market and not yet retired, thereby reducing the number of shares outstanding. Corporations are capable of purchasing its own shares of stock on the open market, but these types of transactions are not accounted for like normal investments. In this article, we’ll go over basic accounting procedures to use when the company buys, sells, or retires treasury stock.