The Following Data Were Reported by a Corporation: How to Solve It
To calculate outstanding shares, subtract treasury shares from issued shares. Authorized shares are not included in this calculation.
Outstanding Shares = Issued Shares − Treasury Shares
The key is understanding what each type of share represents and knowing which figures actually belong in the formula.
Why This Is the Answer
This type of accounting question typically gives you three figures:
- Authorized shares
- Issued shares
- Treasury shares
You may then be asked to determine the company’s outstanding shares.
Only issued shares and treasury shares are needed for the calculation.
Authorized shares tell you the maximum number of shares the corporation is legally permitted to issue. They do not tell you how many shares are currently held by investors.
The formula is simple:
Outstanding Shares = Issued Shares − Treasury Shares
If a company has issued 24,000 shares and holds 6,000 of them as treasury shares, only 18,000 shares remain outstanding.
What Each Term Means
Understanding the terminology makes these questions much easier to solve.
Authorized shares: The maximum number of shares a corporation is legally allowed to issue under its corporate charter. A company does not necessarily issue all of its authorized shares.
Issued shares: Shares that the company has actually issued to shareholders. The number of issued shares cannot exceed the number of authorized shares.
Treasury shares: Shares that the company previously issued and later repurchased. While the company holds these shares, they are not considered outstanding.
Outstanding shares: Issued shares that are currently held by investors rather than the company itself.
A simple way to visualize the relationship is:
Authorized → Issued → Treasury shares removed → Outstanding
Authorized shares set the limit. Issued shares represent what the company has actually issued. Treasury shares are shares the company has bought back. What remains is the number of outstanding shares.
Worked Example
Suppose a corporation reports:
- Authorized shares: 30,000
- Issued shares: 24,000
- Treasury shares: 6,000
Now apply the formula:
Outstanding Shares = 24,000 − 6,000
Outstanding Shares = 18,000
Therefore, the corporation has 18,000 outstanding shares.
Notice that the 30,000 authorized shares are not used in the calculation. That number simply tells you the maximum number of shares the company is permitted to issue.
Common Mistakes
Using authorized shares instead of issued shares
This is one of the easiest mistakes to make. Authorized shares represent the company’s legal limit, not the number of shares currently issued.
Adding treasury shares
Treasury shares must be subtracted, not added. These shares were previously issued but were later repurchased by the company.
Confusing issued shares with outstanding shares
Issued and outstanding shares can be different. The difference occurs when a company holds treasury shares.
If there are no treasury shares, issued shares and outstanding shares can be equal.
Ignoring treasury shares
If treasury shares are provided in the question, they are part of the calculation. Start with issued shares and subtract treasury shares.
Quick Recap
| Term | What It Means | Used in the Formula? |
| Authorized shares | Maximum shares the company can legally issue | No |
| Issued shares | Shares the company has actually issued | Yes |
| Treasury shares | Issued shares repurchased and held by the company | Yes |
| Outstanding shares | Issued shares currently held by investors | Final answer |
Formula: Outstanding Shares = Issued Shares − Treasury Shares
FAQ
What’s the formula for outstanding shares?
Outstanding shares are calculated by subtracting treasury shares from issued shares.
Why aren’t authorized shares used?
Authorized shares represent the maximum number of shares a company is legally permitted to issue. They are not necessarily issued to investors.
Can issued shares and outstanding shares be the same?
Yes. If a company has no treasury shares, its issued and outstanding shares can be the same.
Why are treasury shares not considered outstanding?
Treasury shares are shares that the company has repurchased and currently holds itself. They are therefore excluded from outstanding shares while held by the company.
