Can you tell me (a) what is the meaning of treasury stock and (b) how is it classified in the Balance Sheet?
Answer to (a):
When a company buys its own stock in the open market, the stock re-purchased is called Treasury Stock.
Where there is a difference between the number of shares issued and the number of shares outstanding, it is because of treasury stock. Please note that once a stock has been issued to the public, it is counted as issued, but if it is repurchased by the company and held as treasury stock, it is NOT included in the total of the stock outstanding.
For example, in Company ABC Ltd:
Answer to (b):
So how is the Treasury Stock being Classified in the Balance Sheet?
When a company goes into the market to buy its own stock, it records the amount paid as a debit to Treasury stock. This Treasury stock is a reduction in the stockholders’ equity section and a credit to Cash for the amount paid for the stock. (Debit: Treasury stock and Credit:Cash)
The stockholders’ equity section of the Balance Sheet appears as follows:
- Details Of Ninth Schedule Companies Act 1965(Act No 125)
- Section 169 Companies Act 1965-Profit & Loss Account, Balance Sheet & Directors' Report
- Technical Summary Of IAS 33 Earnings per Share
- How Do We Classify The Share Capital In A Company?
- Technical Summary Of IAS 32 Financial Instruments: Presentation