How to Book Dividend Declaration Journal Entry

A dividend declaration is a formal action by a company's board of directors that a dividend will be paid to shareholders. The journal entry is the accounting record of the dividend declaration and is used to record the company's liability to pay the dividend.

The journal entry for a dividend declaration is a credit to the Dividends Payable account and a debit to the Retained Earnings account. For example, if a company declares a dividend of $100,000, the journal entry is:

Debit: Retained Earnings $100,000
Credit: Dividends Payable $100,000

It's important to note that some accounting systems prohibit the recording of entries to the retained earnings account. In these systems, retained earnings is restricted to solely record accumulated net income and net losses. If this restriction exists, a Dividends account in Owner's Equity (Contra-Equity) may be used.

When the dividend is paid, the entry is:

Debit: Dividends Payable $100,000
Credit: Cash $100,000

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