Selling Treasury Stock Journal Entry

Key Takeaways

• Selling treasury stock involves a debit to the cash account and a credit to the treasury stock account.
• The sale of treasury stock increases the total equity of the firm and affects the calculation of the book value of a company.
• The proceeds from the sale of treasury stock are recorded as a decrease in the treasury stock account and an increase in cash.

Common Stock

Common stock represents ownership in a corporation and provides shareholders with voting rights and potential long-term rates of return. This type of stock is issued to shareholders when a company goes public and is typically offered in the form of shares. Shareholders of common stock have the right to receive dividends, vote on corporate policies, and receive a portion of the company’s assets in the event of liquidation. The returns on common stock can vary greatly, as they are largely dependent on the company’s performance.

Common stockholders are the last to receive payment in the event of liquidation, after bondholders, preferred shareholders, and other debtholders. This makes them the most risky type of investor, as their returns are not guaranteed. However, common stockholders are also likely to receive the greatest returns if the company is successful.

Common stock can also be repurchased by the company, in a process known as “treasury stock”. When a company purchases its own stock, it reduces the number of shares outstanding and can lead to increased stock prices. This process is beneficial to the company, as it gives them more control over the stock and allows them to manage the stock price. The journal entry for this process records a decrease in the company’s cash and an increase in the treasury stock account.

Treasury Stock

Repurchased shares held by the issuing company are known as treasury stock. Treasury stock reduces the total shareholders’ equity on the balance sheet and is considered a contra equity account. There are two different methods of recording treasury stock: cost method and par value method.

The cost method records the treasury stock at the cost of repurchase, while the par value method records the treasury stock at its par or stated value. The cost method is more commonly used than the par value method as it is more accurate.

Treasury stock is important to consider when calculating the book value of a company, as it reduces the total equity of the firm. When treasury stock is sold, the proceeds are recorded as a decrease in the treasury stock account and an increase in cash.

The journal entry for selling treasury stock is a debit to the cash account for the proceeds received and a credit to the treasury stock account for the amount of the sale. This transaction will reduce the amount of treasury stock held by the company.

Selling Treasury Stock Journal Entry

The recording of the proceeds of a sale of previously repurchased shares held by the issuing company involves a debit to the cash account and a credit to the treasury stock account.

This journal entry is used to record the reduction of the treasury stock and the receipt of cash from the sale of the shares.

The treasury stock account is a contra-equity account, thus the debit entry reduces the amount of treasury stock, while the credit entry increases the cash account. The excess of proceeds from the sale over the cost of the treasury stock is recorded as additional paid-in capital.

The journal entry debit cash, credit treasury stock, and credit additional paid-in capital are used to reflect the sale of treasury stock. The cash account is debited for the proceeds of the sale, and the treasury stock account is credited for the reduction of the treasury stock. The additional paid-in capital account is credited for the excess of the proceeds of the sale over the treasury stock.

When treasury stock is sold, cash is received and the treasury stock account is reduced. However, the reduction of the treasury stock account does not result in a gain or loss on the sale. The sale of treasury stock is recorded as a reduction of additional paid-in capital when the proceeds are greater than the cost of the treasury stock.

Conclusion

The sale of treasury stock affects the composition of a company’s capital structure, as well as its balance sheet. When a company sells treasury stock, its total number of shares outstanding decreases, while the company’s total assets, retained earnings, and stockholder’s equity all decrease accordingly.

The journal entry for the sale of treasury stock is to debit the cash account and credit the treasury stock account. This journal entry is an important part of the company’s financial record-keeping process and should be accurately recorded in order to ensure the accuracy of the company’s financial statements.