How to solve for cash outflow for dividends?
If you are trying to solve for the actual cash outflow for dividends for a period, then you need to use the balance sheet approach. The balance sheet approach is great for solving cash to accrual and accrual to cash problems.
As you can see below, the balance sheet approach always uses the beginning and ending balances. You then have to think about what would increase the dividend payable. Dividends payable would increase for any dividends declared.
When a dividend is actually paid in cash, then that is when the dividend payable is reduced. Dividends paid will be a negative impact to the dividend payable account since the cash payment removes or reduces the liability.
For example, if the company had beginning dividends payable of $10,000, ending dividends payable of $12,500, an a declared cash dividend of $42,500, then the actual cash paid for dividends would be $40,000.
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Are dividends expensed on the income statement?
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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.