How do I deal with dividends in accounts?
Summary
This article will explain how to deal with dividends in the Accounts.
More Information
Dividends are a payment made by a corporation to its shareholders, usually as a distribution of "after tax" profits, and as such will be present on the company's Balance Sheet.
 | There are normally two stages to the paying of dividends - the first is the declaration of the dividend and the second is the actual payment of the dividend. These two steps can be done at the same time and this is how it will be dealt with in this article. |
You will need to set up a nominal centre for dividends. This will need to be a Balance Sheet centre and be a 'Financed by' type. Please click here for more details on creating a nominal centre.
Now that you have the nominal centre for dividends you will need to post a journal which will credit the Bank Account centre and debit the Dividends centre.
Go to " Nominal Ledger Journal Entries Cashbook Entries".
- In "Centre:", enter the centre for your bank account - typically this will be 'Z992'.)
- Set the "Money In/Out:" to 'O', as we want to credit the bank account.
- Enter the 'Date' that you will be paying the dividends.
- Enter the nominal centre you have created for the dividend above.
- Enter the 'Nett amount' for the dividend.
- Enter a description for the dividend payment, e.g. '<Person's name> div.'.
- Add as many entries as required for the payment of dividends.
- Once you are ready to post the entries, press <Esc> and click [Accept].
 | The payments of dividends should not be included in the wages journal and if it has previously been posted to the Wages Control Account it should be journalled out and into the dividends centre specified in this article. |
| The reason why this is not being posted to the "Profit and Loss" is because it would affect the nett profit of the business, and as previously stated, dividends are a distribution of profit. |
As part of your year end adjustments, you should journal the dividends from the Dividends centre to your Retained Profit & Reserves centre.
See also
- Posting cashbook entries
- How do I post the wages journal?
- How do I deal with dividends in Platinum Payroll?
