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 some examples of how cash flows can be manipulated or distorted?

    Read about some of the most common accounting techniques that can be used to manipulate the operating cash flow on a company's ...
  2. Where can I find the balance sheet of a country?

    Learn where to find balance sheets for different countries. Explore how different accounting standards may affect the quality ...
  3. What is the difference between cash flow and free cash flow?

    Learn about the main differences between cash flow and free cash flow. In addition to the differences, learn how to calculate ...
  4. What's the difference between cost of goods sold (COGS) and cost of sales?

    Explore the difference between the cost of goods sold and cost of sales listed on an income statement, and what types of ...
RELATED TERMS
  1. Policyholder Dividend Ratio

    The policyholder dividend ratio is a measurement of the profitability ...
  2. Paid-Up Additional Insurance

    Additional whole life insurance that a policyholder purchases ...
  3. Best's Capital Adequacy Relativity (BCAR)

    A rating of an insurance company’s balance sheet strength. Best’s ...
  4. Insurance Regulatory Information System (IRIS)

    A collection of databases and tools used to analyze the financial ...
  5. Book Value Reduction

    Reducing the value at which an asset is carried on the books ...
  6. Accelerated Dividend

    Special dividends paid by a company ahead of an imminent change ...
Related Articles
  1. Interested in becoming a certified public accountant? Here's what you need to know about the CPA exam.
    Investing Basics

    The CPA Exam: What You Need To Know

  2. What is the difference between corporate bonds and preferred stock? The following are a list of pros and cons for each investment.
    Trading Strategies

    Preferred Stocks versus Bonds: How to ...

  3. If you've ever wondered what it takes to earn the CPA designation, here's your answer. Be prepared for lots of studying and lots of testing.
    Investing Basics

    How To Become A CPA

  4. How did investors select worthy alternatives so quickly given the majority of the assets were liquidated at a break neck pace following Gross’ resignation?
    Investing

    Why BOND Still Might Be In A Class Of ...

  5. How can you keep more of what you make or made when you retire? Minimize the taxes from short-term trades and taxable interest income.
    Investing

    Keeping More Of Your ETF Capital Gains ...

Trading Center