What Is the Journal Entry if a Company Pays Dividends With Cash?

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If a company pays dividends with cash, the journal entry must reflect this in a very specific way. Find out about the journal entry if a company pays with cash with help from a banking and financial expert in this free video clip.

Part of the Video Series: Accounting FAQs
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Hi, I'm Lori Greer from Atlanta, Georgia and I'm here to answer the question, what is the journal entry if a company pays dividends with cash? A given company can issue stock dividends in two ways. Dividends can be awarded in an equal value of additional shares or as a cash payment directly to the stockholder. Accrual accounting requires that you recognize the liability for cash payments in the period that the dividend is declared. This will be even if the payment were not issued until the next accounting period. Understanding how to record cash dividend payments, is essential to keeping your financial reports accurate, including reports of stockholders' equity. First, you must determine the total value of the dividend base don the declaration. You would then record the journal entry to recognize the declaration of the dividends, when the announcement is made. This journal entry would be a debit to retained earnings and a credit to dividends payable, for the amount that will be paid. The second entry occurs on the date of the payment to the stockholders. On that date, dividends payable would be debited and cash, credited. I'm Lori Greer from Atlanta, Georgia and we just answered question, what is the journal entry if a company pays dividends with cash?

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