Treasury Stock or Treasury Share is the stock/share which is repurchased by the issuing company. The company issue share to the market and later on buy them back, they are the treasury stock. It will decrease the outstanding number of shares in the market. Treasury Stock will decrease the share equity balance, so it will present as the contra account in the equity account on balance sheet.
When issuing the stock to the capital market, the company will receive cash and for sure it will impact the cash flow statement. The cash inflow from the issuing of new share fall under financing activities. It will increase the cash flow during the period.
Similar to the share issue, treasury share will impact the cash flow from financing activities. When the company buyback the share, they need to pay cash to the investors. So it will make cash outflow from the company.
On 01 January 202X, Company ABC issues 100,000 shares to the market at $ 10 per share. The company can raise capital $ 1,000,000 to expand the business. After the issue, ABC company has $ 10 Million of total share capital.
The journal entry is debiting cash $ 10,000,000 and credit common stock $ 1,000,000 & additional paid in capital $ 9,000,000.
Both common stock and additional paid-in capital will be present in the equity on the balance sheet. Cash will be present on the balance sheet.
After the issuing of new shares, company needs to record both equity items into the balance sheet. Here is the part of ABC balance sheet after issuing a new share on 01 Jan 202X:
The purchase of treasury stock is the transaction that causes cash flow out of the company. The company needs to spend cash to acquire its own shares back.
The issuing of a new share, it will show as cash flow in. On the other hand, the repurchase will show as cash outflow. Both transactions will present under financing activities of the company cash flow statement.