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How are treasury shares classified within the financial statements?
AA liability account owed back to former shareholders
BAn asset account representing shares held for resale
CA contra equity account that reduces total shareholders' equity
DA revenue account recognised when shares are bought back
Answer & Solution
Correct answer: C. A contra equity account that reduces total shareholders' equity
1. Treasury shares are a corporation's own shares that it has repurchased.
2. They are explicitly not an asset, since a company cannot own part of itself as an asset.
3. They carry a debit (normal) balance but are deducted from equity.
4. So they are a contra equity account that reduces total shareholders' equity.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.4 "Treasury Stock", p.250_
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