Journal Entry for Accrued Dividends

Accrued dividends are the amount of dividends that the company has already declared but has not yet made payment to the shareholders.

A dividend is a distribution of profits by a corporation to its shareholders. Shareholders are typically paid dividends in cash, but they may also be paid in the form of stock or other assets.

Dividends are typically paid out quarterly, but they can also be paid annually or monthly. The size of the dividend depends on the profitability of the corporation and the board of director decision.

A dividend is typically a percentage of the shareholder’s investment, but it can also be a fixed amount. For example, a corporation may declare a dividend of $0.50 per share for its shareholders. If a shareholder owns 100 shares, they would be entitled to receive $50 in dividends.

Dividends are not guaranteed, and they can be reduced or eliminated if the corporation’s profitability declines. However, many corporations have a long history of paying dividends, and shareholders often expect to receive them on a regular basis.

The company accrued dividends when the board of directors made an official announcement to the public. it is the company’s obligation to the shareholders. The best example of an accrued dividend is when a company declares its shareholders a quarterly or yearly dividend, but the actual cash for payment is not paid until the following quarter or year.

Dividend payables are posted to accounting books as either current liabilities or non-current liabilities, depending on when the shareholder is expecting to receive payment. If a shareholder expects to receive a payment within one year, then it is classified as a current liability. If a shareholder expects to receive payment after one year, then it is classified as a long-term liability. Mostly, the accrued dividend is expected to pay within a year.

Accrued dividends influence a company’s working capital and gearing ratio, so it’s Important For companies to use proper accounting practices to record their liabilities.

Journal Entry for Accrued Dividends

The company is required to record the liability when the board of directors declares the dividend. It shows the company’s obligation to settle with the shareholders.

The journal entry is debiting Retained Earnings and credit Accrued Dividend Payable.

Account	Debit	Credit
Retained Earning	000
Accrued Dividend Payable		000

The transaction will reduce the company accumulated profit which is the retained earnings on the balance sheet. It also records the liability toward the shareholders.

When the company makes payment to the shareholders, they have to reverse the accrued dividend payable.

The journal entry is debiting accrued dividends payable and credit cash.

Account	Debit	Credit
Accrued Dividend Payable	000
Cash		000

The entry will reduce the cash balance used to settle the accrued dividend payable.

Example

After the year-end closing, the board director of company ABC declared a dividend of $ 8,000,000 to all the shareholders. The company will make payment to shareholders after a month. After the declaration, the company has to record the accrued dividend. Please prepare a journal entry for the accrued dividend payable.

The company’s board of directors has announced the dividend payment after a month. The company has the obligation to make payments to shareholders based on the dividend declaration. It has to record the accrued dividend payable.

The journal entry is debiting retained earnings $ 8,000,000 and credit accrued dividends payable $ 8,000,000.

Account	Debit	Credit
Retained Earning	8,000,000
Accrued Dividend Payable		8,000,000

The transaction will reduce retained earnings $ 8 million and record payable $ 8 million.

On the payment date, the company pays the cash to the shareholders.

The journal entry is debiting accrued dividends payable $ 8 million and credit cash $ 8 million.

Account	Debit	Credit
Accrued Dividend Payable	8,000,000
Cash		8,000,000