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. How is accounting in the United States different from international accounting?

    Learn how accounting standards differ between the International Financial Reporting Standards, or IFRS, and generally accepted ...
  2. What is the variance/covariance matrix or parametric method in Value at Risk (VaR)?

    Learn about the value at risk and how to calculate the value at risk of an investment portfolio using the variance-covariance, ...
  3. How do I find the information needed for input into the Dividend Discount Model (DDM)?

    Learn where analysts and investors can find the three pieces of necessary information that allow them to calculate the dividend ...
  4. What is backtesting in Value at Risk (VaR)?

    Learn about the value at risk of a portfolio and how backtesting is used to measure the accuracy of value at risk calculations.
RELATED TERMS
  1. Convention Statement

    A document filed by an insurance or reinsurance company that ...
  2. Dividend

    A distribution of a portion of a company's earnings, decided ...
  3. Capital Expenditure (CAPEX)

    Funds used by a company to acquire or upgrade physical assets ...
  4. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative ...
  5. Target Payout Ratio

    A target payout ratio is a measure of what size a company's dividends ...
  6. Nonadmitted Balance

    An item on an insurer’s balance sheet that represents reinsured ...

You May Also Like

Related Articles
  1. Charts & Patterns

    Are These the Top Dividend Stocks of ...

  2. Investing

    Analyzing Google's Balance Sheet

  3. Options & Futures

    Trade Covered Calls On High Dividend ...

  4. Mutual Funds & ETFs

    Should the YYY ETF Be on Your Radar?

  5. Stock Analysis

    Is This Dividend Stock A Value Or Value ...

Trading Center