When is a dividend payment recognized in the shareholders equity portion of the balance sheet?

By Ken Clark AAA
A:

From an accounting point of view, shareholders' equity is decreased by the total dividend amount on the date it is declared by a company's board of directors (B of D). An offsetting "dividends payable" entry is made into the account on the same date. When the dividend is finally paid to shareholders, the account is zeroed out and the company's cash balance is decreased by a corresponding amount.

Divided dates can be some of the most confusing aspects of owning stocks and tracking companies. However, investors should take note of four important dates: the declaration date, the date of record, the ex-date and the payable date.

The declaration date, as mentioned above, is the date a company's board of directors decides to pay a dividend. The date of record is the date by which investors must own the shares of stock in order to become eligible for the upcoming dividend. The ex-date is the date on which the stock trades lower than the amount of the dividend to be paid. The payable date is the date on which the dividend is mailed out or deposited to clients' accounts.

(For more on this topic, read Declaration, Ex-Dividend and Record Date Defined and Stock Basics: Different Types of Stock.)

This question was answered by Ken Clark.

RELATED FAQS

  1. What are the differences between installment sales and credit sales?

    Determine the differences between credit sales and installment sales, which businesses often offer their customers for deferred ...
  2. When do you use installment sales method vs. the cost recovery method?

    Take a deeper look at the installment sales method and the cost recovery method of recognizing business sales revenue and ...
  3. What are the differences between operating expenses and SG&A?

    Learn what businesses mean when they list operating expenses or SG&A as line items on an income statement; understand how ...
  4. What are the differences between operating expenses and overhead expenses?

    Learn how operating expenses and overhead expenses affect profit margins; businesses are unique and different costs may fall ...
RELATED TERMS
  1. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  2. Inherent Risk

    The risk posed by an error or omission in a financial statement ...
  3. Deferred Tax Asset

    A deferred tax asset is an asset on a company's balance sheet ...
  4. Expanded Accounting Equation

    The expanded accounting equation is derived from the accounting ...
  5. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  6. Working Capital

    This ratio indicates whether a company has enough short term ...
comments powered by Disqus
Related Articles
  1. What You Need To Know About Preferred ...
    Trading Strategies

    What You Need To Know About Preferred ...

  2. Technology Dividends Offer Income Opportunity
    Investing News

    Technology Dividends Offer Income Opportunity

  3. Material Adverse Effect A Warning Sign ...
    Markets

    Material Adverse Effect A Warning Sign ...

  4. SEC Filings: Forms You Need To Know
    Investing Basics

    SEC Filings: Forms You Need To Know

  5. Footnotes: Early Warning Signs For Investors
    Retirement

    Footnotes: Early Warning Signs For Investors

Trading Center