How do I Account for the Receipt of Scrip Dividends?

Dividends are one form of cash receivables from stock ownership.

A scrip dividend occurs when a company has the capability to pay dividends from retained earnings, but at the current time does not have enough money on hand to pay the dividends. This is usually because the money for the dividends is tied up in a non-liquid manner or investment. The company then issues debt payable to the receiver. If you receive a scrip dividend, then you will account for and record the dividend as you would any other type of debt.

Instructions

1. Determine how much the company owes you in dividends. For example, a company owes another company $1,000 in scrip dividends.

2. Debit "Dividends Receivable" and credit "Dividends." When the company announces the scrip dividends. This records the dividends as a receivable that you will get sometime in the future. In the example, debit "Dividends Receivable" for $1,000 and credit "Dividends" for $1,000.

3. Debit "Cash" and credit "Dividends Receivable" for when you receive the dividends. This clears out the dividends receivable account and acknowledged the receipt of cash. In the example, debit "Cash" for $1,000 and credit "Dividends Receivable" for $1,000.

References

• Accounting Financial Tax: Types of Dividends and Its Journal Entries