What is the journal entry to record a dividend payable?
As soon as the Board of Directors approves and announces a dividend (on the declaration date) , the company must record a payable in the liability section of the balance sheet. Cash dividends are paid out of the company’s retained earnings, so the journal entry would be a debit to retained earnings and a credit to dividend payable. It is important to realize that the actual cash outflow doesn’t occur until the payment date.
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What is the declaration date for a dividend?
The declaration date is when the Board of Directors would approve the dividend and announce the future dividend payment to shareholders. The declaration date is when the dividend becomes a liability for the company.
When must a company record a liability for a cash dividend?
When the Board of Directors approve and announce a cash dividend, then the company must record a liability for the dividend. This date is known as the “Declaration Date”.
What is the payment date for a dividend?
The payment date is when the dividend is actually paid to shareholders (big surprise right!). This is when the cash outflow occurs for a cash dividend, additional shares are issued for a stock dividend, or the property is transferred for a property dividend. For a cash dividend, the liability is removed.