A contra account (contra equity account) that is recorded in the shareholder’s equity section of the statement of financial position (balance sheet). Treasury stock constitutes the number of own shares an entity repurchases from the open market. This has the effect of reducing shareholder’s equity by the amount paid for such repurchases (known as stock transactions). In accounting, these transactions are not reported as an asset, as these practically represent a reduction in total owners’ equity (hence, the classification as a contra account). By nature, this balance sheet account has a debit balance. Stock re-acquisition may reduce retained earnings, but it never increases these earnings.

In accounting treatment, there are two methods for recording treasury stock transactions: 1) cost method and 2) par value method.

Under cost method, treasury stock is recorded in a special equity account until an entity reissues or retires its shares. Under the other method (par value or stated value method), repurchases are accounted for as a retirement of the shares.