Accounting for dividends

[Michael DeBusk]

On 04/12/2010 08:36 AM, Mike or Penny Novack wrote:

> from memory of having once read some "Accounting 101" books.

You reminded me: I still have my college accounting textbook.

> 1) Dividends become a corporate liability when declared by the
> board. Thus a transfer between equity and liability (which are on the
> same side of the books).
> 
> 2) When paid a decrease in that liability and the current account 
> against which the dividend checks drawn (which are on opposite sides
> of the books).

According to my textbook, you're exactly right. You debit Retained
Earnings and credit Dividends Payable.

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