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Treasury Stock

Brian Krogol
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Alright, let's go into more details about Treasury stock. So Treasury stock is stock that's been previously issued. It's been issued previously and then the company is repurchasing its own stock. You want to note that the company is going to repurchase the stock at the current market price. Okay. So if abc company wants to go and repurchase its stock, well, it was stock that it previously issued to stockholders and then it looks okay, what's my stock trading for on google? $50 a share. Okay, that's what I'm gonna repurchase it for $50 a share. Okay. So it's at that current market price that it gets repurchased by the company and a little a couple other notes about Treasury stock first, is that they do not receive dividends. Right. It doesn't make sense for a company to pay dividends and be paying themselves dividends. Right. So the Treasury stock stock that they've repurchased? Well, there's no dividends paid. The dividends are only paid on. Which ones do you think? Remember that was authorized issued and outstanding? It's gonna be on the outstanding shares. Right. The outstanding shares receive dividends. Remember, we issue a certain amount of shares and if we repurchase any, well then the Treasury stock is gonna be What's the difference between those issued and outstanding. Outstanding shares are still in the hands of the public and the difference there, I'll write it here, Treasury stock, I'm gonna put t stock is equal to issued minus outstanding. Okay, so the issued shares, The ones that we have sold to the public minus the ones still in the hands of the public. Well, that's what's equal to what we have repurchased ourselves. All right, So, the Treasury stock is the issued shares minus the outstanding shares. And now this is another trick. A lot of students have trouble, have trouble with this. They think Treasury stock is an asset, right? We repurchase the stock. We have stock in the company, but it's our own company. Right? We're repurchasing the equity of our company. So this is actually a contra equity account. Okay, because you're gonna see that Treasury stock has a debit balance. Okay. Treasury stock has a debit balance. And if you remember equity accounts, right? Equity accounts have credit balances. Right? So this Treasury stock being contra equity. Well, it's going to have a debit balance. It's gonna lower the value of equity, so it's lowering the value of outstanding equity, right? Because we have repurchased our own company has repurchased some of our own stock. Okay, so once we get into the next video, we'll start making the journal entries. I want to note that we're focusing on the cost method for Treasury stock. There's another method called the par value method. But you learn that in later accounting classes, we're gonna focus on the cost method right now. Alright, let's go ahead and pause and then we're gonna start doing the journal entries