How to Account for Share Buy Back

Step-by-Step Guide

1. 1

   Step 1: Repurchase the shares of stock you want to buy back.

   You will have to determine the number of shares you want to buy back in order to figure the total you will be paying out in cash in exchange for the shares.
   
   So, if you buy back 10,000 shares of stock at $15 per share, you will pay out $150,000 in cash., You will label the debit (the amount you paid to buy back the stock) as "treasury stock." Underneath, notate a credit for the same amount in cash.
   
   Using the example of 10,000 shares from step one, you will label a debit of $150,000 as "treasury stock," and a credit for the same amount as "cash."Treasury stock is a contra-equity account.
   
   It is not treated as an asset, because a company cannot legally invest in its own stock.
   
   Rather, treasury stock is presented on the balance sheet, where it reduces the total amount of owner's equity.
   
   If the shares are purchased with another asset (for example, land instead of cash), that asset account should be credited instead. , If you do not resell the stock, you must retire it.
   
   Should you resell it, you will list the resale as a cash debit for the sale amount, plus a credit for any additional paid-in capital (that is, profit from reselling the stock at a higher value) in the treasury stock account.You will list the sale amount minus the additional paid-in capital as a credit for that amount marked "treasury stock." Reselling the 10,000 shares in the example from step one at $17 per share would mean you would notate the resale as a cash debit in the amount of $170,000, along with an additional paid-in capital credit of $20,000 and a treasury stock credit of $150,000. , Retiring the shares requires you to notate in the treasury stock account the par value of the common stock—which is the face value of the stock—as a debit.
   
   If your 10,000 shares of stock from the example in step one had a par value of $1 each, you would notate that as "common stock, $1 par value" along with a debit in the amount of $10,000.
   
   You would list the amount paid above the par value as an additional paid-in capital debit, which would mean $140,000 for the example in step one.
   
   You would need to notate a treasury stock credit in the full amount, which would be $150,000 for the 10,000 share example.
2. 2

   Step 2: Record the transaction in the treasury stock account.

3. 3

   Step 3: Understand that you may choose to resell the stock.

4. 4

   Step 4: Understand that you may retire the shares.

Detailed Guide

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