Recording Dividends

by Audrey McCrimmon
(Rimbey, AB, Canada)

When dividends are paid monthly to shareholders, I credit the bank and debit what?

Also, when dividends are recorded in minutes, are they re-evaluated every year or ongoing?

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Hello Audrey,

The entries pertaining to dividends are:

When declared:

Debit (Decrease) Dividends Declared (Contra account in the retained earnings section of the balance sheet)

Credit (Increase) Dividends Payable (Current liability section of the balance sheet)

When dividends are paid:

Debit (Decrease) Dividends Payable (Current liability section of the balance sheet)

Credit (Decrease) Cash in Bank (Current asset section of the balance sheet)

Dividends must be declared by the Board of Directors each time they are paid.

To declare a dividend, retained earnings must have a credit balance and there must be available cash to pay the dividend. Therefore the ability to pay dividends has to be assessed prior to declaring a dividend.

Dividends in corporations are not an expense. They are more like taking an owner's draw out of a sole proprietorship. This means the action is taking place on the balance sheet.

Tax planning is required each year to determine the amount of dividends to be declared.

I hope I understood your question Audrey and that I have answered it. If not, please post back here for further clarification.

Comments for Recording Dividends

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Jan 13, 2011
Eligible vs Others/Non-eligible Dividend
by: Dummy

What is differences between eligible vs others/noneligible dividend?

Business below $200K (small business deductions) and Canadian.

Why 125% or 145% should be applied?

Thank you.

Jan 13, 2011
Dividend from Taxable Canadian Corporations
by: Lake

Eligible Dividends are grossed up 145% with a dividend tax credit of 27.5% and applies to publicly traded companies ... generally larger companies who do NOT qualify for the small business deduction.

Other than eligible dividends are grossed up at 125% with a dividend tax credit of 16 2/3% and apply to businesses who DO qualify for and/or can claim the small business deduction.

P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

Mar 25, 2013
Budget 2013 Dividend Tax Credit
by: Lake

The March 2013 federal budget included the following measure and will apply to such dividends paid after 2013:

The non-eligible dividend gross-up factor will be adjusted from 25% to 18%.

The dividend tax credit (DTC) will be adjusted from 2/3 to 13/18.

Mar 27, 2015
Capital Dividends - when declared; when paid
by: Anonymous

Should Capital Dividends paid from the CDA under subsection 83(2), with an election under subsection 14(1.01) or 14(1.02) be entered on Schedule 3 E?
When I do so corporate taxes drop. Why? This drop makes little sense to me, i.e. My understanding is that the recipient shareholder is not taxed on these 'non-taxable' dividends. But having both the total gain reported on S125, line 8210 and the "Non-taxable dividend under section 83 from Schedule 3 deducted on S1, lines 401 in full, and line 402 at 50% makes little sense.

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