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If a company purchases its own shares, the accounting treatment is to credit cash and debit share capital. This reduces the share capital of the company, but then, what happens to the cash since the company is effectively paying itself? Doesn’t that mean the cash on hand will be more than the cash in the books since the cash account would be debited, but the money will still be with the company?
That’s an interesting idea Somuto! Tell me, who held the shares before the company bought them back? Answer that one for me and then, if necessary, I’ll give you a full answer