Dividends are profits that are paid out by a company to its investors. They impact different areas of a company's financial statements. When cash dividends are paid out, the distribution affects a company's balance sheet in two primary ways: a decrease in shareholder's equity and a decrease in cash.

Accounting for Dividends

From an accounting point of view, shareholders' equity is decreased by the total dividend amount due to be paid on the 澳洲幸运5官方开奖结果体彩网:declaration date, the date on which the board of dirജectors decides that the company's dividend payment will be made to shareholders.

An offsetting "dividends payable" entry is made into the account on the same date. After the dividend amount is finally paid to 澳洲幸运5官方开奖结果体彩网:shareholders, the dividend payable amount shown on the account is reversed and zeroed out because the obligation has now been met. 

澳洲幸运5官方开奖结果体彩网:Cash dividends do not affect a company's overall income statement. However, they do decrease shareholders' equity and the company's cash balance by the same amount. They do not impact the income statement because the value of retained earnings on the income statement is reported after the dividends have been paid out. The company's balance sheet size is reduced because its assets and equity are reduced by the total amount paid out to shareholders in dividend paymeꦯnts.

After the Dividend

The company's cash balance is also decreased by a corresponding amount because dividends payable are entered into the liability account. The entry is no longer present on the liability side of the company's balance sheet once the dividend payments to shareholders have been completed. There is no separate balance sheet account for dividends after they are paid on the declared payable date.

Cash dividends are the most popular type of dividend payment. However, some companies may offer stock dividends, where the company pays shareholders in shares of its stock inꦬstead of cash.&n🦋bsp;

Shareholders may also have the option to reinvest their dividend earnings through a 澳洲幸运5官方开奖结果体彩网:dividend reinvestment plan (DRIP). Some🍌 corporations allow shareholders to purchase additional shares from the proceeds of the cash dividend amounts due on the dividend payment date. A DRIP allows investors to often buy shares at a discount to the current share price.

Dividend Dates

Dividend dates can be some of the most confusing aspects of owning stocks and tracking companies. However, investors should take note of four important dates: the declaration date, the 澳洲幸运5官方开奖结果体彩网:record date, the 澳洲幸运5官方开奖结果体彩网:ex-dividend date, and the 澳洲幸运5官方开奖结果体彩网:payment date.

The declaration date, as mentioned above, is the date a company's board decides to pay a dividend. The record date is the date by which investors must be registered with the company in order to become eligible for the upcoming dividend payment. (Registration is usually automatic when a stock is purchased.) The ex-dividend date is the date by which an investor must have held the shares to receive the dividend. It is usually within two days before the record date. The payable date is the date on which the dividend is mailed out or deposited to clients' accounts.

The Bottom Line

Dividends are an important consideration for investors when choosing stocks, and they also impact a company's financial statement in a multitude of ways. Though dividends are not specifically shown in shareholder's equity, their impact flows through shareholder's equity because it reduces the shareholder's equity amount on the balance sheet.