JE-116 Nov 2026Manualposted
Declare the dividend.
| Account | Dimensions | Debit | Credit |
|---|---|---|---|
| 3400 Dividends declared | 500,000 US Dollar | ||
| 2450 Dividends payable | 500,000 US Dollar | ||
| Totals | 500,000 US Dollar | 500,000 US Dollar | |
Balanced.
Journal entry for dividends
When dividends are declared, debit Dividends declared (or Retained earnings) and credit Dividends payable. When paid, debit Dividends payable and credit Cash. At year-end, close Dividends declared to Retained earnings.
- Shares outstanding
- 5,000,000
- Per share
- $0.10
- Dividend
- $500,000
- Entity
- Illustrative company
- Basis
- Accrual
- Currency
- USD
- Period
- November – December 2026
The worked example
The board declares a $0.10 per share cash dividend on 5,000,000 shares on November 16, 2026, payable December 15, 2026: $500,000 in all.
Transaction · November 16, 2026
Transaction · December 15, 2026
JE-215 Dec 2026Manualposted
Pay the dividend.
Journal entry JE-2, 2 lines Account Dimensions Debit Credit 2450 Dividends payable 500,000 US Dollar 1000 Cash 500,000 US Dollar Totals 500,000 US Dollar 500,000 US Dollar Balanced.
Closing entry · December 31, 2026
JE-331 Dec 2026Manualposted
Close dividends declared to retained earnings.
Journal entry JE-3, 2 lines Account Dimensions Debit Credit 3200 Retained earnings 500,000 US Dollar 3400 Dividends declared 500,000 US Dollar Totals 500,000 US Dollar 500,000 US Dollar Balanced.
What the entries do to the accounts
Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.
| Account | Debit | Credit |
|---|---|---|
| 1000 Cash | 500,000 US Dollar | |
| 3200 Retained earnings | 500,000 US Dollar | |
| Totals | 500,000 US Dollar | 500,000 US Dollar |
2 accounts net to zero across the entries and are not shown.
Why it is booked this way
Declaring a dividend creates a liability to shareholders the moment the board votes it. Paying it settles that liability.
Dividends declared is a temporary equity account that holds the year's distributions; the closing entry moves its balance into retained earnings, the same way net income arrives there.
Common mistakes
- Booking dividends as an expense.
- Recording nothing until the payment date, which leaves the declared liability off the balance sheet.
Questions
- Are dividends an expense?
- No. Dividends are a distribution of earnings to owners, not a cost of earning them. They reduce retained earnings directly and never touch the P&L.
- Which date matters?
- On the declaration date the board creates a legal obligation, so the liability is recorded then. The record date decides who receives it; the payment date settles it.
Terms on this page
Work with this entry
The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.
- Retained earnings, explained for foundersEvery year's profit or loss since the company started, added up and kept in equity. For most startups it's negative and called an accumulated deficit.Doc
- Retained earnings vs net incomeNet income is one period's profit; retained earnings is the running total of every period's net income less every dividend since the company began — a flow against a balance.Compare
- Temporary account vs permanent accountTemporary accounts — revenue, expenses, dividends and drawings — measure one period and are closed to zero at year-end; permanent accounts — assets, liabilities and equity — carry their balances forward.Compare
- Journal entry for issuing common stockWhen shares are issued for cash, debit Cash for the proceeds, credit Common stock for the par value of the shares, and credit Additional paid-in capital for everything above par.Entry
- Journal entry for an owner's drawFor a sole proprietorship or partnership, debit Owner's drawings and credit Cash when the owner takes money out. At year-end, close drawings to capital: debit Owner's capital, credit Owner's drawings. A contribution is the reverse: debit Cash, credit Owner's capital.Entry
- Journal entry for closing entriesAt the end of the fiscal year, debit every revenue account for its credit balance, credit every expense account for its debit balance, and take the difference — net income — to Retained earnings. Revenue and expense accounts start the new year at zero.Entry
- JournalEntryDebit and credit as two columns. No signed-column variant.Component
- RollForwardOpening → movements → closing → tie. The universal shape.Component
An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.