Question

Explain why Treasury Stocks or Shares negatively impact the stockholder's equity.

Answer 1

--Treasury Stock negative impacts the Stockholder's equity, mainly because Treasury Stock is a 'contra equity' account having a NORMAL DEBIT BALANCE.

--When Treasury Stocks are purchased, the Treasury Stock account is DEBITED. This makes the Treasury Stock normal balance be DEBIT.

--We know that Equity accounts (Capital, Retained earnings, etc) all have normal CREDIT BALANCE.

--From the available CREDIT balances of Equity accounts, the Treasury Stock has DEBIT balance which decreases the Total Stockholder's Equity.