Double entry for dividends paid (2024)

Ron123

Participant

Hi, for double entry for dividend paid, it would be Dr Dividend (Expense); Cr Cash. How about Dr Retained Earnings; Cr Cash (as the dividend is paid from the retained earnings)?

Thank you.

John Moffat

Keymaster

They would first make the entry Dr Dividend expense Cr Cash

At the end of the year they would Dr Retained earnings and Cr Dividend expense.

Ron123

Participant

Oh I see. How about the following:

1. If Company X buys shares from Company Y, X becomes the shareholders of Y. So, when dividend is received by X, the double entry is firstly Dr Cash; Cr Dividend (other income), and at the end of year it will be Dr Dividend; Cr Retaining Earnings?

2. If Company M issues shares, it will get the money in return from the investors (who paid for the shares). So, the entry is Dr Cash; Cr Ordinary Share Capital (OSC)? And when later on M decides to buy back the shares, then the entry will be Dr OSC; Cr Cash?

Thank you.

John Moffat

Keymaster

1. No. The dividend received will be shown as income in the SOFP.

2. Yes, but only if they buy back the shares at the nominal value. More likely they will pay the market value which is likely to be higher, but this is not examinable until Paper FR.

Ron123

Participant

1. So what will be the correct double entry?

2. If they pay the market value which is higher, the double entry becomes Dr OSC; Dr Share Premium; Cr Cash?

Thank you.

John Moffat

Keymaster

1. Dr Cash Cr Dividend income

2. Again, this is not examinable in Paper FA.

Ron123

Participant

Oh I see. This means that if a company pays dividends to the shareholders, the company pays the cash eventually out of their reserve, and therefore, Dr Dividend Expense; Cr Cash. Then at the end of year, Dr Retained Earnings; Cr Dividend Expense (because “Retained Earning” is the “Revenue Reserve” to “pay dividends”)?

If a company (a shareholder) receives dividend, then Dr Cash; Cr Dividend Income only because it is just an “other income” which will be presented in SOPL which will in turn affect the net profit or loss at the bottommost part of SOPL?

Is this correct? Thank you.

John Moffat

Keymaster