Dividends
A dividend is a distribution of profits or reserves to shareholders in their capacity as owners. Ordinary dividends reduce equity rather than being operating expenses in profit or loss. Recognise a dividend liability when the distribution is appropriately authorised and the entity no longer has discretion to avoid payment, according to the relevant legal process. Payment then settles that liability.
Worked example
An authorised $10,000 ordinary dividend reduces retained earnings and creates a dividend payable; paying it reduces both bank and the payable.
Common mistake
An ordinary dividend declared after year end is not a liability at the reporting date merely because it relates to that year’s profits.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |