How to Account for Dividends in QuickBooks?

Dividends accounts are the part of distribution from profit and loss reserved account. While setting up the dividend account, you […]

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Dividends accounts are the part of distribution from profit and loss reserved account. While setting up the dividend account, you have to use Equity, Retained earnings and other current liabilities. The three of above shows the Value of dividend account and allow you to account for dividends to shareholders. The common and easy method to create dividend account is to set it up as a Equity account. For the best suited account one has to consult to their accountant for their business. If for your business, you have decided to maintain account for dividends with retained earnings then there is no need to create different retained earnings account.

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Let’s Create the Dividend Accounts

The following are the steps which are to be perform in creating dividend account. You should have to perform them in a given Sequence, so the steps are:

  • From the top left side of QuickBooks click on “Lists” menu.
  • Now select “Chart of Accounts” from the drop down menu of lists.
  • Create a new account firstly you have to select “Account” button and then on “New” tab.
  • Select “Type” of field and then click on “Other Current Liability“.
  • Now you have to enter “Provision for Dividend” in name field.
  • Enter all the details and complete all the required field in new account window.
  • In order to select the tax line from the tax line list one should consult their accountant.
  • Click on “Save and Next” button in order to save the changes which you have done to create new account. But if you are creating retained earnings account then you have to “Save” changes and “Close” the window because there is no need to create dividend issue account when you are using retained earnings.
  • According to need of your business you can use method of creating account for dividends, select “Other Current Expenses” or “Equity” from the type drop down list.
  • In the name field type “Dividend“.
  • Complete all the remaining fields and the click on “Save and Close” tab in order to save the changes.

Recording of Dividend

When the business makes profit it will do two things with that profit i.e reinvestment or distribution to shareholder. If the company wants to distribute the profit then it is known as dividend and it is recorded in journals.

Once dividend is created then next step is to record dividend of the company. The following are the steps in order to record dividend:

  • Select “Make General Journal Entries” from the “Company” drop down menu.
  • You have to choose one option from two according to your company account requirement, options are :
    • Click on “Account” column and select “Retained Earnings” from the drop down menu of column in case if you are using retained earning account to track dividends. In the dividend column enter the amount of dividend and then write memo, it is optional.
      • After doing the above step now you have to select account column.
      • Click on provision for “Dividend” account from the account drop down list.
      • From the retained earnings add the amount of dividend in the credit list in order to offset the debit.
    • Select dividend account from the account drop down list, in case you are using equity or other current liability account. Now enter debit in debit column to the dividend account.
      • Click on “Account” tab.
      • Now you have to select “Provision of Dividend” account from the account drop down list.
      • In the credit column enter the “Credit” to the “Provision for Dividend” account.
  • Now, adjust the necessary from the “Date” and “Entry Number” fields.
  • Click on “Save” button in order to save the changes you have done.

Book a Dividend Check in QuickBooks

Dividend checks can be paid directly to the stockholders and other dividend recipients. Dividends are reduction of equity in QuickBooks, so there is no need of track dividends in QuickBooks.

You have to use write checks window to print and send dividend payments online to the recipients. Avoid using pay bill window because pay bill option is reserved for the bills that you have received or already enter in QuickBooks.

Now let’s book a dividend check in QuickBooks, so following are the steps to be performed:

  • Select “Banking” tab from the QuickBooks window.
  • Now from the banking dropdown list click on “Write Checks” option.
  • Now click on banking drop down list and select “Dividend Paid Account“. And if you are sending payment online then select the account that supports online payment and then tick the “Online Payment” box.
  • Select payee from the pay to order drop down list. Enter the “New Name” in new name field.
  • Click on Quick Add tab and enter all the details of payee.
  • In the $ field you have to “Enter the Amount” of dividend to be paid.
  • Enter “Address of Recipient“. In case you are paying amount to existing recipient whose address you previously entered in that case QuickBooks enter address automatically, there is no need to rewrite.
  • In the date field “Enter the Date” of check.
  • Enter the delivery date of check in delivery date field if you are “Paying Check Online“. (The process of paying check is depending on the process of bank you selected.
  • Click on “Memo” and type the “Dividend Payment“.
  • If you are finished win entering the check details then click on “Save and Close” button. And in case if you want to create other check then you can click on save and next button.

Creating Dividend Ledger Accounts

After the recording the dividend the company has to create additional ledger accounts in equity and current liabilities category. For creating ledger accounts you have to follow the following steps:

  • Select Business setting from the setting menu.
  • Below the financial settings click on chart of accounts.
  • Now for creating new ledger click on new ledger account.
  • Enter the following details for the dividend account.
    • Included in Chart: Leave this selected.
    • Ledger Name: Enter the name for account you want to give.
    • Display Name: Enter the name you want to display of the account.
    • Account Number: Enter the number of account.
    • Category: In category field you have to choose Equity.
    • Visibility: By default it is selected, so leave it.
  • To save the changes click on save button.
  • Now, again click on new ledger account.
  • Enter the details for the dividend liability.
    • Included in Chart: Leave this selected.
    • Ledger Name: Enter the name for account you want to give.
    • Display Name: Enter the name you want to display of the account.
    • Account Number: Enter the number of account.
    • Category: In category field you have to choose current liability.
    • Visibility: By default it is selected, so leave it.
  • Save the change by clicking save button.

Paying of Dividend

  • Select bank account after clicking banking tab.
  • Select New entry tab and click on payment and expenses from the drop down menu.
  • Enter the full detailed information by clicking on other payment tab:
    • Vendor: Select the name of vendor whom you are paying amount.
    • Paid from Bank Account: Select the name of bank from which you are paying to vendor.
    • Method: Select the mode of method you are choosing to pay the vendor.
    • Date of Paid: In this enter the date on which you are paying to vendor.
    • Reference: If you think that there is the requirement of reference then you can enter the reference number in this field.
    • Ledger Account: Select dividend liability
    • Details: In this column enter the detail which you think will be useful in future.
    • Total: In end enter the total amount to be paid to vendor.
  • You can enter the separate line for adding additional information, in case you are paying amount more than 1 vendor.
  • Click on save in order to save the changes.

Movement of Amount to the Profit and Loss Ledger Account

  • Select Adjustments in journals.
  • Click on new journal tab.
  • Enter the date on which you are doing transaction.
  • Enter the detail reference information of transaction.
  • Enter the relevant detail information in order to transfer the dividend.
  • Now save the changes by clicking on save tab.
  • Now the amount will be shown on profit and loss instead of balance sheet report.

In the above article we try to explain you about the dividend that how we can account for the dividend. We hope this article helps you in understanding the detail about dividend and the picture of dividend is clear in your mind.

If you have any query about the dividend then you can contact with Dancing Numbers experts via LIVE CHAT option. We are here to assist you 24*7.

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Why Stock Division is is used more than the Cash Division?

The reasons behind that stock division is used more than cash division are:

checked In Stock Outstanding it helps in increasing number of shares.
checked It helps in reducing market value as per share of stock.
checked Stock division is very helpful in transfer some of the corporation retained earnings to be paid in capital.
checked It reduces the distribution of corporation cash to its stoke holders.

What is a Stock Dividend?

Stock dividend can be defined as dividend which consist additional shares of stock. In other words we can say that a dividend which is paid to the shareholders in form of additional share in the company. It is not in cash. They are not taxed until shares are sold by the owner.

What is Cash Dividend?

It is the distribution of corporation cash. In other words cash dividend can be defined as a part of funds or money paid of corporation current earnings or profit distributed among the stockholders. It is directly paid in form of money.

What is the Payout Ratio of Dividend?

The dividend payout ratio is also known as simply payout ratio. It is the percent value of corporation earnings that is paid in form of cash. Dividend payout ratio = cash dividend of common stock (per share) / earning of common stock (per share).

What do You Mean by Dividend Yield?

Dividend yield can be define as:

Annual cash dividend (per share) of common stock
Market price of share of common stock

How Dividend is to be Paid When there is a Dividend in Arrears?

Dividend in arrears consist in two condition when the corporation has:

checked Cumulative preferred stock.
checked In case of above condition the past dividend is omitted and the amount is not paid.

Following are the steps to be performed when the corporation wants to pay the dividend:

checked Any of the dividends to be paid in arrears.
checked Preferred stock of current year dividend is to be paid.
checked To the corporation common stock dividend is to be paid to the holders.

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