This is one of those little truisms that I have used in many of my articles on finance. The “treasury stock” is the difference between cost and par value. The treasury stock is the difference between cost and a nominal amount based on the par value. The nominal amount is usually the cost of the inventory to be sold.
If our inventory has a cost of $10,000, then our treasury stock is $10,000. If we sell our inventory for $20,000, then our treasury stock is $20,000.
Treasury stock is what you buy when you sell a company’s inventory, which is always a higher price than the cost of the inventory to be sold. It’s also what you pay when you buy stock in a company, and the company has a “cost” of 10,000.
If you want to find out more about treasury stock, I recommend you read my post “Treasury Stock: Its Meaning and History” from November 2009. If you don’t, don’t worry, because I’ll get to it.
Treasury stock has always been a tricky thing to keep track of, especially for the uninitiated. It is a variable that you can add to your cost, and has always been recorded as a cost. If you buy stock in a company, you have to pay the cost of the inventory (which is how companies keep track of their resources).
The stock price can also be recorded as a cost, but with some companies that doesn’t have a cost of inventories they just use the company’s cost. I don’t know of any reason why they would record it as a cost if it wasn’t. I doubt they even know that they do it.
The reason is a company can charge whatever they want to the price of the stock. They dont even need to know or think at all about what that is. If they need to record the stock price as a cost to them, they can.
It is a common thing for companies to charge the cost of inventories as a cost of stock. It is also a common thing for companies to charge costs the par value of a stock as a cost of stock. Since the par value is a constant, it is a constant price. In the case of a company that doesnt have its own costs of inventories, it may be that they use the cost of inventories to determine the stock price. I have no idea.
I guess i could see the par value as a cost, but you should never use it as a cost of stock. Using that as a cost of stock is a common way of accounting for inventory and a common way to account for inventory when youre inventories are not real physical inventory.
If you want to make an inventory, you should be able to record the inventory as being in stock. I know this is a bit of a stretch, but I think it would be more accurate to use the cost of stock as a cost of inventory. Just because the cost of inventory is a constant, doesn’t mean it should be used to calculate the stock price.