How to account for dividends received

Written by kaye morris
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How to account for dividends received
Companies can invest in shares. (Comstock/Stockbyte/Getty Images)

If your company bought stock in another company, that stock is issued in shares. Each share represents a piece of ownership in the corporation, including corporate profits. When a corporation has a good financial year with a healthy profit, the board of directors may vote to issue a dividend payment to shareholders. The dividend payment is calculated per share, so you will receive a cheque from the corporation for the amount of the dividend payment times the number of shares your company currently hold.

Skill level:
Easy

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Things you need

  • General ledger

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Instructions

  1. 1

    Create a "Dividends Received" account in the "Extraordinary Income" section of the general ledger. Because the income received on the dividends is not related to the operations of your business, it should be reported in the "Extraordinary Income" section, separate from the normal operating income from your business.

  2. 2

    Record the total amount of the cheque for dividends as an increase to the Current account in the "Assets" section of the general ledger. Generally Accepted Accounting Principles considers an increase to an asset account a "debit."

  3. 3

    Record the total amount of the cheque for dividends as an increase to the "Dividends Received" account. GAAP considers an increase to an extraordinary income account a "credit."

Tips and warnings

  • If you are not certain how to record dividends received, consider hiring an accounting professional to assist you.

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