Loading the player...

What is 'Treasury Stock (Treasury Shares)'

Treasury stock is outstanding stock repurchased from stockholders by the issuing company.  These shares are issued but not outstanding and are not included in the calculation of dividends or earnings per share (EPS).

BREAKING DOWN 'Treasury Stock (Treasury Shares)'

Treasury stock is a contra account recorded in the shareholder's equity section of the balance sheet.  Because it represents the number of shares repurchased from the open market, it reduces shareholder's equity by the amount paid for the stock.  In addition to not issuing dividends and not being included in EPS calculations, treasury shares have no voting rights.  Also, the amount of treasury stock cannot exceed the maximum proportion of total capitalization specified by a nation's regulatory body.  In the United States, the Securities and Exchange Commission (SEC) laws govern buybacks.

Treasury Shares vs. Retired Shares

Treasury stock can be retired or held for resale in the open market. Retired shares are permanently canceled and cannot be reissued later; once retired, the shares are no longer listed as treasury stock on a company's financial statements. Non-retired treasury shares can be reissued through stock dividends, employee compensation, or a capital raising, for example.

Treasury Shares' Effect on the Balance Sheet

When a company raises cash by issuing stock, the equity portion of the balance sheet shows a positive balance in the common stock and additional paid-in capital (APIC) accounts. The common stock account reflects the par value of the shares, while the APIC account shows the excess value received over the par value.

Treasury shares reduce shareholders' equity and are generally labeled as "treasury stock" or "equity reduction".  There are two methods of accounting for treasury stock: cost method and par value method.  The cost method reduces the paid-in capital account by the amount of treasury stock purchased.  If the treasury stock is later resold, the paid-in capital account is either debited or credited depending on whether the stock was sold at a gain or loss.  Under the par value method, common stock is debited and treasury stock is credited when shares are repurchased from shareholders.  If later resold in an open market, it will follow the cost method process.

Example of Treasury Shares

A company has excess cash and believes its stock is trading below its intrinsic value; as a result, it decides to repurchase 1,000 shares of its stock at $50 for a total value of $50,000. The total sum of its equity accounts including common stock, APIC, and retained earnings is $100,000. The repurchase creates a treasury stock contra account; as a result, the $50,000 treasury stock repurchase is deducted from the $100,000 equity account balance, leaving a difference of $50,000. Correspondingly, the cash account on the asset side of balance sheet decreases by $50,000.

RELATED TERMS
  1. Treasury Direct

    Treasury Direct is the online platform through which investors ...
  2. Treasury Offering

    A treasury offering is the issuance of an additional class of ...
  3. 30-Year Treasury

    The 30-Year Treasury is a U.S. Treasury debt obligation that ...
  4. Direct Repurchase

    The buying of shares in a publicly-traded company by the company ...
  5. Treasury Secretary

    The Treasury secretary is the head of the U.S. Department of ...
  6. U.S. Treasury

    Created in 1798, the U.S. Treasury is the government (Cabinet) ...
Related Articles
  1. Investing

    What's Your Stock's Repurchase Premium?

    Take a closer look at your favorite stock's statement of equity; you never know what you're going to find
  2. Investing

    Introduction to Treasury Securities

    Purchasing Treasury securities backed by the U.S. government and knowing their characteristics can provide a steady guaranteed income and peace of mind.
  3. Financial Advisor

    Top 4 Treasurys ETFs (SHY, IEI)

    Learn about the specifics of the top four U.S. Treasury ETFs and how investors can buy ETFs that invest in bonds along the yield curve.
  4. Investing

    A Breakdown Of Stock Buybacks

    Find out what these company programs achieve and what it means for stockholders.
  5. Investing

    What is a Share Premium Account?

    The share premium account is an equity account found on a company’s balance sheet.
  6. Investing

    TLT: iShares Barclays 20+ Year Treasury Bond ETF

    Learn about the iShares 20+ Year Treasury Bond ETF (TLT). TLT is a very liquid ETF with low costs that allow investors to gain exposure to treasuries.
  7. Investing

    Treasury Shares Wreak Havoc On Retained Earnings

    Aeropostale's retirement of 47.5 million shares in October is worth looking into.
  8. Investing

    Reading the Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  9. Insurance

    The Share Buyback Report: The Financial Sector

    Examine historical buyback data from the financial sector to determine which quarters and companies contributed the most to repurchase activity.
RELATED FAQS
  1. What Is Treasury Stock?

    Find out about shares called treasury stocks that were once part of shares outstanding for a company, but have since been ... Read Answer >>
  2. Why would a company buy back its own shares?

    Learn about share buybacks and the reasons a company might choose to repurchase its own stock, including ownership consolidation ... Read Answer >>
  3. How do dividends affect the balance sheet?

    Learn how different types of dividends, such as cash dividends and stock dividends, affect a company's balance sheet, based ... Read Answer >>
  4. Treasury Bond vs Treasury Note vs Treasury Bill

    Understand the types of securities the government issues. Learn the difference between Treasury notes (T-notes), Treasury ... Read Answer >>
Hot Definitions
  1. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  2. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  3. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  4. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  5. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  6. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
Trading Center