Corporate Dividends Payable

by Bernice
(Fort St John)

Captial vs Common Dividends

Bookkeeping Entries For Corporate Dividends Paid

When a corporation pays dividends to it's shareholders, what are the bookkeeping entries?

You would credit the bank - what is the debit side of the entry?

Thanks, Bernice

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Hey Bernice,

When the dividends are declared by the board of directors, your bookkeeping entry would be:

DR Retained Earnings (equity account on your balance sheet) ... OR
DR Dividends or Dividends Declared (an equity account that is cleared to retained earnings at year-end)

CR Dividends Payable (current liability account on your balance sheet)

When you pay the dividends to the shareholders, your bookkeeping entry would be:

DR Dividends Payable

CR Cash in Bank

Hope this is the information you were looking for.

Comments for Corporate Dividends Payable

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Jun 06, 2011

Dividend Cheque Issued
by: Anonymous

The business gets a cheque for dividends from its investment.

By declared, do you mean this is when you enter the dividends that the business gets and is put into the business's account?

Jun 07, 2011

Declaration of Dividends
by: Lake

Normally, before dividends can be paid (or distributed) to shareholders, the Board of Directors must must first declare a dividend.

The date the Board declares the dividend, an bookkeeping entry is made to record the liability.

A dividend cannot be declared if you have negative retained earnings.

I hope that answers your question.

Jun 07, 2011

More Help Sorry
by: Anonymous

What if your business bought shares in another business and now you receiving the cheque because they issued their dividends?

Would you DR bank and CR retained earnings?

Would you do the above when you want to distribute your own business's dividends?

Sorry for soooo many questions. I've never done dividends before.

Jun 08, 2011

Dividends Received On Investment
by: Lake

If the corporation is receiving dividends from an investment, the bookkeeping entry would be DR Cash in Bank and CR Dividend Income or Investment Income.

As a general rule, you should never book an entry to retained earnings unless your accountant tells you.

When your business issues dividends, you would follow what I posted in the previous postings. My preference for booking the initial liability is DR Dividends or Dividends Declared (equity account) and CR Dividends Payable (current liability account).

Nov 22, 2012

Capital and Common Dividends
by: Anonymous

How is the bookkeeping different for a capital dividend and a common dividend?

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What a great question!

My favorite tax site, taxtips.ca has an excellent definition of a capital dividend:

"Canadian controlled private corporations (CCPCs) keep track of certain non-taxable income amounts, and are able to pay these amounts to shareholders as a capital dividend. The capital dividend is not taxable to the shareholders. The non-taxable income amounts are tracked in the company's capital dividend account, and include the non-taxable portion of capital gains, less the non-allowable portion of capital losses, plus the non-taxable portion of gains on eligible capital property (such as goodwill), plus non-taxable life insurance proceeds."

A common dividend is a dividend paid to common stock holders from the profit. Dividends can't be declared if there are no retained earnings in the company. These dividends are not tax free.

Nov 12, 2014

RDTOH
by: Anonymous

I'm confused regarding the bookkeeping entries to account for Refundable Dividend Tax on Hand for Private Corporations. Evidently, CRA does not actually refund this amount as a cash refund to the corporation.

The ITA appears to imply that this money may be paid tax free to the shareholders as tax-free dividends? But there appears to be no such entry on a T5 or T4? Please explain?

Nov 14, 2014

RDTOH
by: Lake

U of C has a short tutorial on RDTOH. You can find it at people.ucalgary.ca/~law/tutorials/L541/lesson5_Part4A_intro.html .

It begins by stating "Integration of non-active business income occurs through the use of the RDTOH account. 26 2/3% of non-active business income is included in the RDTOH account. This amount is refundable to the corporation at the rate of $1 for every $3 it pays out in taxable dividends (subsection 129(1))."

The RDTOH can be refunded tax free. Check with your accountant on how to do this to ensure you don't run amuck. I find corporate tax is very unforgiving. What looks simple often is not.

Jan 17, 2017

Dividends Payable and Dividend Refund
by: Anonymous

IF a CCPC Dividend is declared before the year-end and is payable as of the year end, BUT paid after the year end --

Can a Dividend refund be claimed in the tax year in which the dividend is declared ?
OR
Is the dividend refund claimed in the tax year in which the dividend is paid (in this case, that would be the tax year following the tax year in which the dividend is declared)?

Jan 25, 2017

Dividends Payable and Dividend Refund
by: Lake

It is my understanding that the RDTOH can be refunded tax free when the taxable dividend is paid by the CCPC. See this article here:

http://accountingmontreal.ca/refundable-dividend-tax-on-hand/

This is a good explanation of how it works as well:

http://people.ucalgary.ca/~law/tutorials/L541/lesson5_Part4A_intro.html

Jan 07, 2018

Dividends
by: Anonymous

When declaring a dividend I credit Dividends Paid Account (Equity)
I pay dividends semimonthly and debit Dividends Paid Account to show ) and year end.

After completing taxes I debit retained earning account the amount of dividends paid. The Retained Earning account just keeps growing negative each I do. (I feel like I am missing something) and now I'm confused.

Jan 18, 2018

Dividends Payable and Dividend Refund
by: Lake

Dividends Declared (a sub account under Retained Earnings) will get cleared as part of year-end when closing entries are made. Some people don't clear it so it reflects cumulative dividends declared and paid since the history of the company.

You cannot declare or pay dividends if you have negative retained earnings. Negative retained earnings usually indicates you are operating at a loss.

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