How Do I Go About Retiring Stock: How To Explanation.

Retiring Stock

A corporation can purchase its own stock and retire it. Retiring stock reduces the number of issued shares. Retired stock is the same as authorized and unissued shares. Purchases and retirements of stock are permissible under state law only if they do not jeopardize the interests of creditors and stockholders. When stock is purchased for retirement, we remove all capital amounts related to the retired shares. If the purchase price exceeds the net amount removed, this excess is debited to Retained Earnings. If the net amount removed from all capital accounts exceeds the purchase price, this excess is credited to the Paid-In Capital from Retirement of Stock account. A company’s assets and equity are always reduced by the amount paid for the retiring stock.

Point: Recording stock retirement results in canceling the equity from the original issuance of the shares.