Journal Entries of Dividends

Dividend is the source of income of shareholders when they invest money in shares  for gaining the dividend. On the other hand, when company declares the dividend for shareholder, it will be the deduction of its net profit. For transferring dividend out of net profit, we make the profit and loss appropriation account.


Following are the journal entries of dividends

1. When dividend is proposed by company out of net profit. 

Profit and Loss Appropriation Account Debit

Proposed Dividend Account Credit

2. When Proposed dividend is paid by Company 

Proposed Dividend Account Debit

Bank Account Credit

3. When Dividend is Declared Out of Retained Earning 

Retained Earning Account Debit

Dividend Account Credit

4. When Such Dividend is Paid 

Dividend Account Debit

Bank Account Credit

Examples : 


Let’s assume that the Reliance Corporation, on Dec. 20, 2011, declared a cash dividend of Rs. 2 per share on 4,00,000 shares payable April 1, 2012, to all stockholders of record March 15. The following journal entries are required:

1. Date of declaration, Dec. 20, 2011

Retained Earning Account Debit 8,00,000

Dividend Payable Account Credit 8,00,000

2.  When dividend is paid on Date of payment, April 1, 2012

Dividend Payable Account Debit 8,00,000

Bank Account Credit 8,00,0000

Important : Sometime company may not have sufficient cash, at that time, company may give his fully paid up new equity shares or other investments. So, we will not credit the bank account but we will credit the equity share capital or investment.