How to Account for Stock Retirement

When a company repurchases its own shares and immediately retires those shares (cancelling the shares and removing them from circulation), this reduces the number of shares issued and outstanding.
So what's the journal entry? It depends on whether the repurchase price is higher or lower than the original issue price of the shares.
If the repurchase price is LOWER than the original issue price of the shares, then the company (1) decreases the common stock and additional paid-in capital accounts, (2) decreases the cash account, and (3) credits an account called "paid-in capital - share repurchase" to make the total debits equal the total credits (so the journal entry balances).
If the repurchase price is HIGHER than the original issue price of the shares, then the company (1) decreases the common stock and additional paid-in capital accounts, (2) decreases the cash account, and (3) reduces the retained earnings account (but first reduces the "paid-in capital - share repurchase" account if that account has a balance).
The main difference between these two scenarios is that in one case, the "paid-in capital - share repurchase" account is credited to make the journal entry balance while in the other case the retained earnings account is debited to make the journal entry balance.
The accounting approach outlined in this video is sometimes called the "constructive retirement method."
In no case does the company record a gain or a loss, as these transactions only affect balance sheet accounts.
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[@mrtuber132]

thank you Ed. The language you choose to instruct with is always so enlightening. I appreciate you adding new topics

[@Rose-xi8bs]

Thank you professor, I also start reducing or increasing Cash first, when the account is involved; then it’s easier to work on the rest of the journal entry.

[@matthewhoward8795]

thank you! helped me

[@Edspira]

Glad it helped!

[@GraceCreatesLivingSpace]

Can you link to the video you mention at 0:19 ?

[@Jazz-learn_eng]

Hello professor I have one question about US CPA? Where can I direct message you

[@wendypalacios4238]

Thank you🥲 I’m so happy that I found you🙏🏽

[@Rose-xi8bs]

Funny company name 😄