Are dividends expensed on the income statement?
Nope! There is no income statement impact for any type of dividend issues by a company. Dividends are paid out of retained earnings, which is part of stockholders’ equity on the balance sheet.
Dividends are not considered an operating expense because they are not required to run the business in normal course of business. Just remember that there is no income statement impact for dividends!
The visual below illustrates how dividends are paid out of retained earnings and no expense is recorded.
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What is a dividend?
A dividend is when a company distributes profits to its shareholders. Typically, dividends are in the form of cash and are distributed when the company has excess cash that is not reinvested into the business. A company can also issue a stock dividend or property dividend.