Dividend Declared

• Retained Earnings to be Debited by Dividend * Number of shares = $ 4.5 * 2500 = $ 11,25,000/-
• Dividend Payable accounts on the current liability side to be credited by $ 4.5 * 2500 = $ 11,25,000/-

Now as was declared earlier, dividends will hit investors account on April 04, 2019, following journal entries will be passed in the company’s account:

• Dividend Payable accounts on the current liability side to be debited by $ 4.5 * 2500 = $ 11,25,000/-
• Cash account on current asset side to be credited by $ 4.5 * 2500 = $ 11,25,000/-

Benefits of Dividend Declared But Not Paid

It helps to develop a positive sentiment in the market for the company. For example, in case a company wants to create a positive sentiment in the market thereby increasing the price of its shares. But it does not want to part with the cash in the company in the short term to create hedging for some contingency. The company may declare a dividend to be paid once the company’s short term contingency fund requirement is over. This way money will actually not flow out of the company’s books and the positive sentiment will also be created in the market.

Points to Remember

• Tax payment on Dividends – In the case of a company, dividend distribution tax is paid by the company when the dividend is paid to the shareholders and not when it is declared. The announced dividend along with the dividend distribution tax is deducted from retained earnings at the time of declaration and a similar amount is credited to the dividend payable liability account but actual tax payment is done when the dividends hit the shareholder’s account.
• Upper Limit for the Dividend to be Declared: The company must not declare dividends more than the profits available from current and previous financial years of the company’s performance as it will create liquidity issues for the company.
• Can it be Reversed? Suppose a company declares a dividend on October 10, 2018, for dividends with future payment dates as March 25, 2019. However, there was a new policy rolled out by the government in the company’s sector of operation which leads to a reduction in liquidity in the company for the medium term. Thus, the company requires cash for regular business operations. Hence, if a company wants such dividends to be reversed, the same can be done. The company will need to call for another meeting of the board of directors and basis their vote the dividends can be reversed.

Recommended Articles

This has been a guide to Dividend Declared and its definition. Here we discuss the benefits of dividend declared along with practical examples. You can learn more about financing from the following articles –

• Dividend Policy Types
• Accounting Journal Entries Examples
• Types of Dividends
• What is Dividend Policy?
• Qualified vs Ordinary Dividend – Compare
• Stock Dividend Meaning