A:
Change dividends offer a typical way for companies to return capital to their shareholders. The gelt dividend affects the cash and shareholders’ equity accounts primarily. There is no codify balance sheet account for dividends after they are paid. Nonetheless, after the dividend declaration and before the actual payment, the company extremes a liability to its shareholders in the dividend payable account.
After the dividends are availed, the dividend payable is reversed and is no longer present on the liability side of the match sheet. When the dividends are paid, the effect on the balance sheet is a lessening in the company’s retained earnings and its cash balance. As a result, the balance pane size is reduced. Retained earnings is listed in the shareholders’ equity sector of the balance sheet.
However, when a company reports their every thirteen weeks results, the balance sheet only reports the ending account matches. As a result, the dividend would have already been paid and the wane in retained earnings and cash already recorded. In other words, investors won’t see the burden account entries.
Investors can also see the total amount of dividends repaid for the period in the financing section of the statement of cash flows. The cash run statement shows how much cash is entering or leaving a company and in the situation of dividends paid, it would be listed as a use of cash for the period.
Example
Over a company that has 2 million common shares and declares a cash dividend for the amount of 25 cents per deal. At the time of the dividend declaration, the company records a debit to its retained earnings account for the amount of $500,000 and a trust to the dividend payable account for the same amount. After the company travels the dividend payment to its shareholders, the dividend payable account is reversed and debited for $500,000. The scratch and cash equivalent account is also reduced for the same amount help of a credit entry of $500,000.
After cash dividends are paid, the company’s offset sheet does not have any accounts associated with dividends. In any case, the company’s balance sheet size is reduced, as its assets and equity are changed by $500,000.