Journal entry for reissuing treasury stock

Introduction

It is common that we may have the treasury stock and reissue it back to the market when our company is in need of the cash for the business operation. In this case, we need to make the journal entry for reissuing treasury stock when we reissue it back to the market in order to account for the increase in our assets as well as the increase of our equity on the balance sheet.

We may reissue the treasury stock above or below the cost that we have paid for when purchasing it. Likewise, the journal entry for reissuing treasury that we reissue above the cost will be different from the one that is below the cost. Of course, we may also reissue the treasury stock at its cost too.

Treasury stock is our own company’s stock that we have repurchased or reacquired back from the market. Of course, our company has to be a public listed company in the capital market to be able to have the stock transaction in the capital market in the first place.

Journal entry for reissuing treasury stock

Reissue treasury stock above the cost

We can make the journal entry for reissuing treasury stock by debiting the cash account and crediting the treasury stock account and the paid-in capital account of the treasury stock if we reissue it above the cost.

The treasury stock account is a contra account to the capital account in the equity section in which its normal balance is on the debit side. On the other hand, the paid-in capital account of the treasury stock in this journal entry is the difference between the amount we receive for reissuing it back to the market and the cost we paid for when we purchased it.

The normal balance of the paid-in capital account is on the credit side. Likewise, reissuing the treasury stock back to the market means increasing the capital account. Hence, in this journal entry, both total assets and total equity on the balance sheet increase by the same amount that we reissue the treasury stock for.

Reissue treasury stock below the cost

Alternatively, we may reissue the treasury stock below the cost that we have acquired or purchased from the market. In this case, we will debit the paid-in capital account of the treasury stock which will reduce its balance instead.

Likewise, we can make the journal entry for reissuing treasury stock below its cost by debiting the cash account and the paid-in capital account of treasury stock and crediting the treasury stock account.

In this journal entry, the balance of the paid-in capital account of the treasury stock is reduced by the difference between what we have paid to reacquire the stock and the amount we receive for reissuing it back to the market.

In this case, if the balance of this paid-in capital account is not sufficient to cover the difference, we will need to debit the additional amount into the retained earnings to cover the rest. Likewise, we may need to include the retained earnings account into the journal entry for reissuing treasury stock below its cost as below:

Or if the balance of the paid-in capital account of the treasury stock is zero, the retained earnings will need to cover all excess amounts. This is due to, in accounting, the balance of the retained earnings can be a negative figure (also known as accumulated losses), however, the paid-in capital account cannot be negative.

Reissue treasury stock at the cost

Even though it is not common, we may also reissue the treasury stock at its cost. In this case, we can make the journal entry for reissuing treasury stock by simply debiting the amount that we receive into the cash account and crediting the same amount into the treasury stock account.

This journal entry is simply the reverse of purchasing entry of the treasury stock. Of course, it is not a reversing entry, we just reissue the treasury stock for the same amount that we have purchased it in this case.

Reissuing treasury stock example

For example, on June 30, we reissue 10,000 shares of the treasury stock for $15 per share that we purchased in the previous period. Previously, we purchased these 10,000 shares of treasury stock for $10 per share which was totaling to $100,000 in the purchase transaction.

In this case, we reissue the treasury stock at $15 per share which is above its cost of $10 per share. And the difference between the cost of purchase and reissuing price is $50,000 (10,000 shares x $5 per share).

Likewise, we can make the journal entry for reissuing the 10,000 shares of the treasury stock above its cost by debiting the $150,000 (10,000 shares x $15) into the cash account and crediting a $100,000 into the treasury stock account and the remaining $50,000 into the paid-in capital account of the treasury stock.

The $50,000 of the paid-in capital of the treasury stock in this journal entry is the excess amount that we receive over the cost that we paid for purchasing them previously. Likewise, in this journal entry, total assets and total equity on the balance sheet increase by $150,000 as of June 30.

Example 2:

For another example, assuming that we paid $18 per share for the 10,000 shares of the treasury stock that we have purchased previously which was totaling to $180,000 in the purchase transaction. And on June 30, we still reissue these 10,000 shares of the treasury stock for $15 per share.

In this case, we reissue the treasury stock for $15 per share which is below its cost of $18 per share. And the difference amount here is $30,000 (10,000 shares x $3 per share).

Likewise, we can make the journal entry for reissuing treasury stock below its cost by debiting the $30,000 amount of the difference into the paid-in capital account of the treasury stock as below:

Example 3:

Assuming that we still have paid $18 per share for the 10,000 shares of treasury stock and still reissue them for $15 per share on June 30, the same as in example 2.

However, as of June 30, we only have a $10,000 credit balance of the paid-in capital of the treasury stock in our balance sheet. In this case, we can only debit a $10,000 amount into the paid-in capital account of the treasury stock. Hence, we need to debit the rest of $20,000 into the retained earnings account.

Likewise, the journal entry for reissuing the treasury stock below its cost, in this case, will be as below instead:

It may be useful to note that there is no gain or loss on the reissuing of treasury stock transactions. In accounting, we may record the gain or loss on the sale of an asset but the treasury stock is not an asset. It is our own stock that we resell or reissue here, so no income statement item is involved.

As in the examples above, we add an excess amount to the paid-in capital account of the treasury stock for issuing above the cost. On the other hand, we deduct the different amounts from the paid-in capital of treasury stock or retained earnings if we issue below the cost.