What does the term "Treasury stock" refer to in financial accounting?

The term "Treasury stock" refers specifically to stock that has been repurchased by the issuing company. When a company buys back its own shares from the marketplace, those shares are held as treasury stock. This action reduces the number of shares outstanding in the market, which can have various effects, such as potentially increasing earnings per share and providing the company with the flexibility to reissue the shares later or hold them as a strategic reserve.

Treasury stock does not include shares that are held by shareholders, which would be considered outstanding shares. It also does not refer to stock that has never been issued, as that would fall under the category of authorized but unissued stock. Additionally, stock that is issued to the public is simply referred to as public shares and is not classified as treasury stock. Understanding treasury stock is important because it reflects a company’s financial strategy and can impact financial ratios and the perception of the company’s financial health.