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payment of a dividend is:
dr retained earnings
cr cash
————————-retained earnings is an equity account…..
so why do we say that paid divs only show in cash flow and statement of changes in equity and NOT SOFP?
Retained earnings are indeed an equity account – they are owing to the shareholders – and therefore, yes, they do appear in the Statement of financial position.
The payment of dividends will certainly have reduced the retained earnings (just as the profit made will have increased the retained earnings). However the dividends paid are not themselves shown in the SOFP (and neither is the profit itself show). It is the retained earnings at the end of the year that appear – the profit for the year and the dividends paid are in a sense just part of the workings to arrive at the retained earnings figure at the end of the year.
(and those ‘workings’ are shown in the Statement of changes in equity so that shareholders can understand how the balance on retained earnings has been arrived at.)
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