Cash dividends offer a way for companies to return capital to shareholders. The cash dividend primarily impacts the cash and shareholder equity accounts. There is no separate balance sheet account for dividends after they are paid. However, after the dividend declaration but before actual payment, the company records a liability to shareholders in the dividends payable account.
After declared dividends are paid, the dividend payable is reversed and no longer appears on the liability side of the balance sheet. When dividends are paid, the impact on the balance sheet is a decrease in the company's dividends payable and cash balance. As a result, the balance sheet size is reduced. If the company has paid the dividend by year-end then there will be no dividend payable liability listed on the balance sheet.
Investors can view the total amount of dividends paid for the reporting period in the financing section of the statement of cash flows. The cash flow statement shows how much cash is entering or leaving a company. In the case of dividends paid, it would be listed as a use of cash for the period.
Consider a company with two million common shares that declares a cash dividend of 25 cents per share. At the time of the dividend declaration, the company records a $500,000 debit to its retained earnings account and a credit to the dividends payable account for the same amount. After the company pays the dividend to shareholders, the dividends payable account is reversed and debited for $500,000. The cash and cash equivalent account is also reduced for the same amount through a credit entry of $500,000.
After cash dividends are paid, the company's balance sheet does not have any accounts associated with dividends. However, the company's balance sheet size is reduced, as its assets and equity are reduced by $500,000.