Accounting Demystified

Treasury Stock

When a company buys its own stock in the open market, the entry is fairly straightforward. The company records the amount paid as a debit to Treasury stock (which is a reduction in the stockholders' equity section) and a credit to Cash for the amount paid for the stock.

Let's assume that on December 11, 2002, a company repurchases 1,000 shares of its stock in the open market at a price of $4.00 per share. The entry to record the repurchase is:

The stockholders' equity section of the balance sheet will appear as follows:

Stockholders' equity
Common stock (1,000,000 shares authorized, 500,000 issued, and 499,000 outstanding; par value ...