How to Record Dividends Payable

Dividends payable is a liability on a company's books.

A dividend is a distribution of a company's earnings to its shareholders. There's often a month or two between the time a company declares a dividend and the time it pays the dividend. You can create a journal entry in your general journal on the date your board of directors authorizes a dividend, called the declaration date, to record a liability for the total amount of a cash dividend payable to shareholders. A company is obligated to pay a dividend after declaring one, and the dividends payable amount remains a liability for the company until the date of payment.

Things You'll Need

• General journal

Instructions

1. Determine the declaration date and the amount of a cash dividend your company has declared.

2. Write the declaration date in the date column of a new journal entry in your general journal, which is a book that contains a list of accounting transactions.

3. Write the description "Dividends" aligned on the left side of the description column and the amount of the cash dividend in the debit column on the first line of the journal entry. A debit amount increases the dividends account, which reduces retained earnings. For example, to record dividends payable of $100,000, write "Dividends" in the description column and "100,000" in the debit column.

4. Write the description "Dividends Payable" indented in the description column and the amount of the cash dividend in the credit column on the line below "Dividends" to complete the journal entry. A credit amount increases the dividends payable account, which is a liability account. For example, write "Dividends Payable" indented in the description column and "100,000" in the credit column.

Tips & Warnings

• You can also include a short description beneath the dividends payable journal entry that includes information such as the dividend per share, the number of shares outstanding and the date of payment.

• The "Dividends Payable" description is used only for a cash dividend and not a stock dividend, which distributes shares of stock.

References

• Principles of Accounting; Chapter 14: Corporate Equity Accounting; Larry Walther; 2010
• CliffsNotes: Dividends
• Principles of Accounting; Dividends; Larry Walther; 2010
• Principles of Accounting; Dividends Payable; Larry Walther; 2010