What is Dividend Declared?
Dividend declared is that portion of profits earned by the company that the company’s board of directors decides to pay off as dividends to the shareholders of such company in return to the investment done by the shareholders through the purchase of company’s securities and such declaration of dividend creates a liability in the books of the concerned company.
In simple words, Dividends declared is the event where the declaration is made by the company regarding payment of part of its earnings as a dividend to its shareholders. Such a declaration leads to the creation of a liability account in the balance sheet of the company for the associated payments until the payment of dividends is not actually done. The value of such a liability account depends on the amount declared by the board of directors authorized by shareholders.
Difference Between Dividend Declared and Dividend Paid
- When the board of directors issues a declaration regarding dividends to be distributed it is called dividend declared. The accounting effect of the dividend is retained earnings balance of the company is reduced and a temporary liability account of the same amount is created called “dividends payable.”
- Dividend paid is the event when the dividends hit the investor’s account. When the dividends are paid, the “dividends payable” liability account is removed from the company’s balance sheet and the cash account of the company is debited for a similar amount.