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?
The entries pertaining to dividends are:
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.