How to Record Dividends in a Journal Entry

All the investors who invests in shares and stocks will have two big resource of earning. One is dividend and second is capital gain on the sale of same shares. Some investor invests long term, so, company has to declare the dividend out of their total profit.

So, it is the duty of company's accounts department to record dividends in journal entries. If account department will not record dividend, it will difficult to find net cash flow and application of working capital. So, every accountant has to learn to record dividends in journal entry.

There are following are main steps :

1st Step : Declare the Dividend

Board of directors will officially declare the dividend amount. It may 1% or 5% of total paid up capital or total earned profits. So, after declaring the dividend, liability will start.

2nd  Step : Record the Dividend Liability

Just like any other liability, company record this liability on the date of declaration of dividend. Following entry will pass.

Profit and Loss Appreciation Account Dr.

Dividend Payable Account Cr.

3rd Step : Record of Dividend Payment

With payment, bank balance of company will decrease and dividend payable liability will also decrease.

Dividend Payable Account Dr.

Bank Account Cr.

For example : ABC company's board of directors have declared the dividend of $ 100000 on 1st July 2015. On same date following entry will pass.

Journal entries

Profit and Loss Appropriation Account Dr.100000

Dividend Payable Account Cr. 100000

On first august, today, ABC Company is paying same dividend to its shareholders and following journal entry will pass.

Dividend Payable Account Dr. 100000

Bank Account Cr. ( Cheques sent  to each shareholders) 100000

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Accounting Education: How to Record Dividends in a Journal Entry
How to Record Dividends in a Journal Entry
Accounting Education
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