We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Treasury Stock Method?

By John Lister
Updated May 17, 2024
Our promise to you
WiseGEEK is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGEEK, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A treasury stock method is the system by which a company accounts for stock it has issued and then reacquired. There are two main types of treasury stock method, known as cost and par value. With both types, there may be some legal restrictions on how the accounts are prepared.

Despite the name, treasury stock in the United States has nothing to do with a government's financial department. It does not refer to financial products such as treasury bills, the government equivalent of a company bond. Treasury stock is purely related to companies which are publicly traded. The name can be particularly confusing, as in the United Kingdom, treasury does indeed refer to government-issued debt-based products. The UK instead uses the term treasury share to refer to reacquired stock.

A company can create treasury stock by buying previously issued and traded stock back from investors. This could be done as a way of giving cash to stockholders rather than issuing dividends. It can also be a way of making it harder for another company to launch a successful takeover bid. It should be noted that though treasury stock is "created," the total number of shares remain the same, while the number of shares available for trading on the markets actually falls. The creation of treasury stock is in fact a conversion rather than a true "creation."

There are a couple of implications from the creation of treasury stock. One is the way it is listed on balance sheets. The usual system is to list it as a negative figure in the shareholder equity category. This category effectively represents the total money that stockholders have invested in the company. This figure would become significant if the company was liquidated.

Some form of the treasury stock method is also needed to track the stock when it is bought back by the company, plus if and when it is then resold to the public. One option is the cost method, in which the money raised or spent is applied to the paid-in capital category. This category usually lists any money raised from investors beyond the face value of their stock.

Another treasury stock method is par value. With this method, when stock is bought back it is simply listed as moving from traded stock to treasury stock, making no change to any other section of the accounts. If and when it is then resold to investors, the accounts are revised in the same way as with the cost method.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

By Niceptosta — On Dec 23, 2013

A company that uses the treasury stock method simply reduces the number of available shares for purchase by shareholders. Treasury stock shares are shares that have already been paid for, and are held by the company. Companies do this sometimes if they believe that the price per share is too low. When a company reduces the number of available shares, the price per share may increase. This doesn't always happen though.

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.