Treasury stock

From Wikicpa

Treasury stock is a corporation's own stock, once issued and later reacquired, but not cancelled. For proper classification to Treasury stock, three factors must be considered:

1. Treasury stock must be the corporation's own stock and not other companies stock.

2. The stock must not have been cancelled. Cancellation is effected by procedures specified by the governing law. In some cases cancellation may result in reducing the authorized issue of the stock, in other cases the shares remain authorized, the only reduction being in the issued shares which are the legal or stated capital.

3. The stock must have been issued. Unissued stock should not be called Treasury stock. There are several reasons why a distinction is made to maintain treasury and unissued stock. Treasury stock can usually be sold without the stockholders' authorization, it can be sold at a discount and most of the stockholder's rights do not apply.

Treasury stock in not an asset

Although treasury stock has sometimes been reported in the balance sheet as an asset (erroneously combined with purchased securities), it is accepted that the purchase of treasury stock is not the purchase of an asset. Although treasury shares may have a marketable value and may be re-sold like unissued stock, it is not an asset but merely a possible source of additional funds.

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