Dividends Declared Journal Entry

Assuming there is no preferred stock issued, a business does not have to pay dividends, there is no liability until there are dividends declared. As soon as the dividend has been declared, the liability needs to be recorded in the books of account as dividends payable.

Suppose a business had dividends declared of 0.80 per share on 100,000 shares. The total dividends payable liability is now 80,000, and the journal to record the declaration of dividend and the dividends payable would be as follows.

Dividends Declared Journal Entry

The dividends declared journal entry is shown in the accounting records using the following bookkeeping entries:

Dividends declared journal entry
Account Debit Credit
Dividends 80,000
Dividends payable 80,000
Total 80,000 80,000

Dividends Declared Bookkeeping Explained

The debit is a charge against the retained earnings of the business and represents a distribution of the retained earnings to the shareholders. The debit entry is not an expense and is not included as part of the income statement, and therefore does not affect the net income of the business.

The credit entry to dividends payable represents a balance sheet liability. At the date of declaration, the business now has a liability to the shareholders to pay them the dividend at a later date.

The Accounting Equation

The Accounting Equation, Assets = Liabilities + Equity means that the total assets of the business are always equal to the total liabilities and equity of the business This is true at any time and applies to each transaction. For this transaction the accounting equation is shown in the following table.

Dividends declared journal entry accounting equation
Assets = Liabilities + Owners Equity
None = Dividends payable + Retained earnings
0 = 80,000 80,000

With the dividends declared journal entry, a liability (dividends payable) is increased by 80,000 representing an amount owed to the shareholders in respect of the dividends declared. This is balanced by a decrease in the retained earnings which in turn results in a decrease in the owners equity, as part of the retained earnings has now been distributed to them.

Popular mdct.ru Examples

The dividends declared journal entry is one of many accounting journals, discover another mdct.ru example at the links below:

Dividends Declared Journal Entry November 6th, 2016Team

You May Also Like

Related pages

journal voucher meaningjournal entry for amortizationpreferred stock journal entrywhat type of account is sales returns and allowancespv in exceltrade payable ratioreplenish petty cash fund journal entryfreight prepaid collectpresent value of increasing annuitybank reconciliation defineinventory sale journal entrybalance sheet debtorsretained earnings examplesfixed overhead variance formulahow to calculate mark up percentageaccounts receivable accrualaccounting equation expandedaccounting cycle quizallowance for doubtful accountsleverage ratio formuladefine cushionssample requisition slip formhow to calculate bond discountdegree of operating leverageaccounting for withholding taxwhat is the profitability indexhow to write a ledger bookconsignment agent meaningimplicit interest rateentry for prepaid expenseredeemable preferred stockcurrent liabilities definition in accountingmeaning of prepaid expensesasset test ratio formulaamortisation in accountingaccounting ledger examplescost formula managerial accountingcalculate loan amount excelarr equationcurrent assets debtorsfv in excelsales returns accountingexample of adjusting journal entrieshow to calculate gearing percentagecompound continuously interest formulatypes of suspense5 year cash flow projection templateexamples of fixed overhead costswhat is unearned revenue classified assale of receivables without recourseannuity perpetuity formulanotes receivable balance sheetgearing ratio meaningstandard costing journal entriesideal debtors turnover ratiohow to journalize freight chargesvertical analysis of income statement exampleprepare a multiple step income statementdepletion expensetimesheet exampleadjusted journal entrieshow to record depreciation expense journal entryexamples of accrued revenueledger in accounting examplethe collection of accounts receivable is recorded by atreasury stock contra equitysinking fund accounting entriessales tax converter calculatordeferred revenue definitionhow to calculate declining balance depreciationnormal balance of accounts payableaccounting ledgers examplesbookkeeping definitionstraight line depreciation method calculatorvendor statement reconciliationhow to calculate interest expense on a loansimple cash receipt template