Accounting Demystified

Dividends

A company will generally issue dividends in the form of cash. Sometimes it will issue additional shares of its stock as a dividend (called a stock dividend) when it wants to issue a dividend but does not have the cash available for a cash dividend. Only the board of directors of a company may declare a dividend. Once a dividend is declared, it cannot be rescinded. The declaration of a dividend by the board of directors legally binds a company to pay that dividend.

There are many dates associated with the dividend. The date on which the dividend is declared by the board of directors is called the declaration date. On the declaration date, the company will make a journal entry to record the declaration of the dividend. It does this by ...