Treasury Stock and the Contra-Stockholders' Equity Account

Understanding Equity
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Understanding Equity
Treasury Stock or repurchased stock is a type that a company acquires through buying back or repurchasing its shares from outstanding shareholders. A company acquires treasury stock by buying back stock, previously issued but now outstanding, back from its stockholders. These stocks have no share in the company dividend distribution. Besides, they are not part of calculations for the Earnings Per Share, EPS.
Treasury stock indeed represents a contra-Stockholders Equity account. On the balance sheet, it is presented as a ‘minus’ to the stockholders’ equity, whose summation is computed by adding share capital to retained earnings and subtracting Treasury Stock. It is therefore a contra item in that it reduces the stockholders’ equity portion, by the value ...