How to record a dividend issued in QuickBooks?
I had a customer who asked me this question, 'How to record a dividend in QuickBooks?’
This is an accounting question; it is regarding the method used in your accounting process.
I had seen user using these methods; which you may like to consider:
Dividend as an Other Expense account in Profit & Loss Report
Some users create a Dividend account (as an Other Expenses type of account) and a Provision for Dividend account (as an Other Current Liability type of account). Then, they passed a journal to debiting the Dividend account and crediting to the Provision for Dividend account.
Example:
Assume that the company is going to issue $400,000.00 as a dividend for the year. The double entry will be debiting the Dividend account $400,000.00 and crediting the Provision for Dividend account $400,000.00.
Some user may feel that presenting Dividend as a Profit & Loss account may not be right; they may prefer to deduct it from the Retained Earnings account.
How to record the dividend directly into Retained Earnings account?
Recording Dividend by deducting it from Retained Earnings account
How these users did was they record a General Journal to debiting the Retained Earnings account and crediting the Provision for Dividend account.
Example:
The Net Income for the year is $1,000,000.00 and Dividend provision was $400,000.00
The journal will be debiting the Retained Earnings account $400,000.00 and crediting the Provision for Dividend account $400,000.00.
In this case, the Profit & Loss Report will still show the Net Income was $1,000.000.00 but the Retained Earnings account will be left with $600,000.00.
Recording Dividend by using an Equity account
Some user may feel that the above method of deducting directly from the Retained Earnings account is confusing. They may prefer to create a separated Equity account to capture this Dividend issued.
How to do it?
They create a new Equity account, Dividend issued account. Then, pass a General Journal to debit the Dividend Issued account of $400,000.00 and credit the Provision for Dividend account of $400,000.00.
In this case, your Balance Sheet report will show $1,000.000.00 for Retained Earnings account and a negative $400,000.00 for Dividend Issued account. The Total Equity account will be as $600,000.00.
Most of the user told me that they were prefer this method; but please check with your accountant for the detail on which method that your company should apply.