Is there a difference between dividends and cash dividends when accounting for dividends?

Posted by admin on April 7th, 2010

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Posted in Dividends Tags: cfa level, Dividends, earnings

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One Response to “Is there a difference between dividends and cash dividends when accounting for dividends?”

1. Sandy says:

   April 7, 2010 at 7:33 pm

   You are right. Dividends are paid out in cash. However there are usually 2 stages. First, you announce or declare the dividend to be paid on a certain date. When a corporation declares a cash dividend on its stock, its retained earnings are decreased (debited) and its current liabilities (Dividends Payable) are increased (credited). Later, when the cash dividend is actually paid, the Dividends Payable account is decreased (debited) and the corporation’s Cash account is decreased (credited).

   The income statement is not affected by the declaration and payment of cash dividends on common stock. Dividends are reported in the Statement of Changes in Equity. The cash dividends will also be reported as a use of cash in the financing activities section of the cash flow statement.