How is the issuance of shares, purchase of treasury shares, and reissue of treasury shares recorded?

Share issuance records capital contributions, treasury share purchases reduce equity, and reissues may create gains/losses in equity accounts, not affecting the income statement.

Accounting for Share Transactions

Share transactions include issuing new shares, buying back shares (treasury stock), and reissuing bought-back shares. Each has different accounting treatment.

Three Main Transactions:

Issuance of Shares: Company sells new shares to raise capital
Purchase of Treasury Shares: Company buys back its own shares
Reissue of Treasury Shares: Company resells previously bought-back shares

Journal Entries for Each Transaction

1. Issuance of Shares:

Example: Issue 1,000 shares at $15 each (par value $10)

Dr Cash $15,000
Cr Common Stock (par) $10,000
Cr Additional Paid-in Capital $5,000

Increases cash and equity

2. Purchase of Treasury Shares:

Example: Buy back 500 shares at $20 each

Dr Treasury Stock $10,000
Cr Cash $10,000

Decreases cash, Treasury Stock is contra-equity account

3. Reissue of Treasury Shares:

Example A: Reissue at higher price ($25 vs $20 cost)

Dr Cash $12,500 (for 500 shares)
Cr Treasury Stock $10,000
Cr Additional Paid-in Capital - Treasury $2,500

Example B: Reissue at lower price ($18 vs $20 cost)

Dr Cash $9,000
Dr Additional Paid-in Capital - Treasury $1,000
Cr Treasury Stock $10,000

Key Accounting Principles

Important Rules:

No Income Statement Impact: Gains/losses on treasury transactions go to equity, not profit/loss
Treasury Stock: Contra-equity account (reduces total equity)
Shares Outstanding: Treasury shares are not outstanding (no voting/dividends)
Cost Method: Most common method for treasury stock

Financial Statement Effects:

Balance Sheet:
• Issuance: ↑ Cash, ↑ Equity
• Purchase: ↓ Cash, ↓ Equity (via Treasury Stock)
• Reissue: ↑ Cash, ↑ Equity (if above cost)
Income Statement: No direct effect
Cash Flow: All are financing activities

Legal Considerations:

Must have legal authority to issue/buyback shares
Cannot impair legal capital
May require shareholder approval for large transactions