Dividends represent a company’s way of sharing profits with its shareholders. Corporate accountants ensure dividends are correctly calculated, approved, and recorded.

Let’s break down the rules, process, and journal entries involved.

What is a Dividend?

• A dividend is a portion of profits paid to shareholders as a return on their investment.

• It can be paid in cash, shares (bonus issue), or other assets.

Types of Dividends:

• Interim Dividend – Declared by the Board during the year before final accounts.

•Final Dividend – Declared at the Annual General Meeting (AGM), approved by shareholders.

• Bonus Shares – Shares issued free to existing shareholders instead of cash dividend.

Rules for Declaration & Payment:

• Dividends can be paid only from: Current year profits after depreciation Past profits (reserves) Money provided by Government (in certain cases)

• As per Companies Act 2013:

Dividend must be paid within 30 days of declaration. Unpaid dividend must be transferred to Unpaid Dividend Account within 7 days. After 7 years, unpaid dividend moves to the Investor Education and Protection Fund (IEPF).

Real-World Example:

• TCS and Infosys regularly declare interim and final dividends as part of shareholder return strategy.

• Reliance Industries has a strong record of dividend payments while also issuing bonus shares.

Journal Entries for Dividend Accounting:

1) When dividend is declared:

Profit & Loss Appropriation A/c Dr. 
 To Dividend Payable A/c 
 To Dividend Distribution Tax (if app  licable)

2) On payment of dividend:

Dividend  Payable A/c Dr. 
 To Bank A/c

3) For unpaid dividend Dividend:

Payable A/c Dr. 
  To Unpaid Dividend A/c

Impact on Financial Statements

• Dividend reduces reserves and surplus.

• Current liabilities show unpaid dividend until paid.

• Cash/bank balance decreases after payment.

Why Dividend Accounting is Crucial?

Ensures compliance with statutory requirements.

Provides transparency to shareholders. Avoids penalties for delay/non-payment.

Dividend accounting connects a company’s profitability with shareholder rewards. A corporate accountant’s accuracy in this area reflects the company’s governance and commitment to its investors.

Blog Not Found