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. Why is it sometimes better to use an average inventory figure when calculating the ...

    For a couple of key reasons, average inventory can be a better and more accurate measure when calculating the inventory turnover ...
  2. How do you calculate working capital?

    The formula for calculating working capital is straightforward, but lends great insight into the shorter-term health of a ...
  3. How do changes in working capital affect a company's cash flow?

    Working capital represents the difference between a firm's current assets and current liabilities.
  4. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The concept of CAGR is relatively straightforward and requires only three primary inputs: an investments beginning value, ...
RELATED TERMS
  1. Expanded Accounting Equation

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

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

    This ratio indicates whether a company has enough short term ...
  4. Billing Cycle

    The interval of time during which bills are prepared for goods ...
  5. Amortization

    1. The paying off of debt in regular installments over a period ...
  6. Payout Ratio

    The proportion of earnings paid out as dividends to shareholders, ...
comments powered by Disqus
Related Articles
  1. A Clear Look At EBITDA
    Markets

    A Clear Look At EBITDA

  2. ROA And ROE Give Clear Picture Of Corporate ...
    Markets

    ROA And ROE Give Clear Picture Of Corporate ...

  3. Beware False Signals From The P/E Ratio
    Fundamental Analysis

    Beware False Signals From The P/E Ratio

  4. Measuring Company Efficiency
    Fundamental Analysis

    Measuring Company Efficiency

  5. Reviewing Liabilities On The Balance ...
    Fundamental Analysis

    Reviewing Liabilities On The Balance ...

Trading Center