Cost Method (of Treasury Stock Accounting)

Under the cost method of treasury stock accounting, treasury shares are recorded and carried at their reacquisition cost. A gain or loss is determined when treasury stock is reissued or retired, and the original issue price and book value of the stock do not enter into the accounting. Additional paid-in capital from treasury stock is credited for gains and debited for losses when treasury stock is reissued at prices that differ from the original selling price. Losses may also decrease retained earnings if additional paid?in capital from treasury stock does not have a balance large enough to absorb the loss. Net income or retained earnings is never increased through treasury stock transactions. See also treasury stock and par value method (of treasury stock accounting).