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You said in one of your lectures that we record dividend only when it is paid by debiting retained earning and crediting dividend payable; but i hope we credit current liability is because we normally pay the dividend after the year end as your said in your lecture?
Secondly, i read in my textbook that there are two accounting entries for dividend; once when the dividend is declared and voted by the shareholders at the year end then we record our first entry by debiting retained earnings and crediting dividend payable. But the second entry is made when the dividend is finally paid after the year end by debiting dividend payable and crediting cash. Is that correct way?
Thirdly, when companies declare their dividends then do they declare the whole amount to be paid or quote a percentage of their retained earnings?
Sorry I was confused here!!!
If the dividend is voted on by the shareholders before the year end, then it is recorded as being owing (debit retained earnings and credit dividend payable).
However this is rarely likely to be the case because the directors usually propose the dividend after the year end when the profits are known, and therefore the shareholders normally vote on it after the year end. Then the dividend is paid and only then we credit cash and debit retained earnings.
Dividends are usually proposed as a dividend per share.
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