How to Retire Treasury Shares

After a company repurchases its own shares, the board of directors might approve the retirement of those treasury shares.
Retiring the treasury shares effectively cancels the shares, reducing the number of issued shares.
In terms of the journal entry, you reverse the common stock and APIC from the original stock issuance and then charge any remaining amounts to retained earnings.
-
Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world.
-
SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS:
• A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING
• A 44-PAGE GUIDE TO U.S. TAXATION
• A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS
• MANY MORE FREE PDF GUIDES AND SPREADSHEETS
* eepurl.com/dIaa5z
-
SUPPORT EDSPIRA ON PATREON
* / prof_mclaughlin
-
GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT
* edspira.thinki...
-
LISTEN TO THE SCHEME PODCAST
* Apple Podcasts: podcasts.apple...
* Spotify: open.spotify.c...
* Website: www.edspira.co...
-
GET TAX TIPS ON TIKTOK
* / prof_mclaughlin
-
ACCESS INDEX OF VIDEOS
* www.edspira.co...
-
CONNECT WITH EDSPIRA
* Facebook: / edspira
* Instagram: / edspiradotcom
* LinkedIn: / edspira
-
CONNECT WITH MICHAEL
* Twitter: / prof_mclaughlin
* LinkedIn: / prof-michael-mclaughlin
-
ABOUT EDSPIRA AND ITS CREATOR
* www.edspira.co...
* michaelmclaugh...

[@MyFinancialFocus]

Great explanation!

[@salamance2]

What if the company sees a growth of APIC due to market reevaluation ? During the retirement of the 20,000 shares would that also be 100,000 debited APIC ?

[@nilsrohrbacher6848]

What would happen with APIC and RE if we would retire them for a lower value, than initially issued for?

[@martin_gonzalez_seoane]

Same question

[@Edspira]

In that case, you would make a credit to the account, "Paid-in Capital - Treasury Shares"

[@CPAHallTalk]

Very well done!

[@tarekalsherif57]

Thank you Michael, why specifically we debit the retained earnings?

[@martin_gonzalez_seoane]

I have the same doubt

[@joesums989]

@@martin_gonzalez_seoane I think its because we look at it as a payment. First the excess ((or profit made on par)) Then we dig into our own pockets (the business) to pay what is owed. SO first we give back our profits from the shares then we dig into the pockets if we have to? I think that is what is happening here

[@mahamsaleem3876]

Excess loss above APIC per share amount reduces RE directly

[@peter9910]

Why don't treasury shares show up as an asset on the balance sheet? Thanks for the vid.

[@backstabber3537]

why would it its not an asset its a contra equity , u paid cash to purchase ur own shares " treasury stock " so no net asset was created

[@jinjung2042]

what is a contra equity account?

[@BlitzOfTheReich]

an account that reduces an equity account