Actually Useful Accounting (Actually Useful Books Book 1) by Phil Cohen

Author:Phil Cohen [Cohen, Phil]
Format: azw3
Published: 2013-12-01T05:00:00+00:00

Dividends

When the company has made enough money the owners will generally want to get some of it out and spend it. There are a couple of ways they can do this: if it’s a small business and the owners actually work in the business, they can pay themselves a salary.

The other way is to declare a dividend. This is a special payment made to the owners by the company that reduces the equity of the company (if the equity is a loan from the owners to the company, then a dividend is a repayment of part of that loan).

Dividend payment shows up in the balance sheet under equity:

· equity

· paid-in capital

· retained earnings

· dividends paid

And the transaction of actually paying a dividend looks like this:

Dividend payment

credit: bank $10

debit: dividends paid $10

(Reducing the bank account by $10 is bad news, so a credit. Reducing equity by $10 is good news (for the company) so it’s a debit).

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