How to record dividend payments using journals in Accounting Start.
How to record dividends
To make sure the amount allocated for dividends gets reported on your Profit and Loss we recommend that you:
Record the allocated dividends in two new ledger accounts as equity and a liability - This gets reported on your balance sheet and it remains here until the dividend's paid
Once paid, transfer the value from the balance sheet ledger accounts to ledger accounts on your profit and loss - This is to make sure the value on your Balance Sheet Report only relates to the current financial year
You can do this at any point in your financial year or at the year end.
You'd need to follow the steps below to record the divedends.
We recommend that you create the following ledger accounts to record your dividends.
| Name | Nominal code | Category | VAT rate |
|---|
Dividend cost | 8900 | Overheads | No VAT |
Dividends | 3201 | Equity | No VAT |
| Dividend liability | 2231 | Current Liability | No VAT |
About Nominal codes
We recommend the Nominal codes above based on our default chart of accounts. If you have a different numbering system, use the number that suits your business.
We use the Category, rather than the Nominal code to determine where the values appear on your reports.
- From More, select Business Settings.
- From within the Financial settings subheading, select Chart of Accounts, then New Ledger Account.
Enter the details and select Save.
When your company has agreed the dividend amount, enter this as a journal. Enter a journal must always have equal debit and credit values. In our example, we have allocated dividends of £5000.
- From Journals, select New Journal.
- Enter the reference, date and a description if required.
Enter debits and credits in the following way
| Ledger Account | Debit | Credit | Include on VAT Return |
|---|
| Dividends (3201) | 5000 | 0.00 | Leave clear |
| Dividend liability (2231) | 0.00 | 5000 | Leave clear |
Select Save.
The allocated dividend appears on your Balance Sheet as a liability and also updates the Equity section of the report.
If you have more than one shareholder, you may need to record multiple payments.
You can either:
- Create a new payment from your bank feed or bank statement import.
- Enter a bank payment. If you're using bank feeds or importing from a bank statement, simply match the payment.
In our example, the total dividend payment is £5000.
Using bank feeds or import your bank statement
When you process your imported bank transactions:
- Select the Dividend Liability ledger account from the What drop down list.
- Select Create.
Create a manual bank payment
If you don't have a bank feed and don't import your bank statements:
- From the Banking tab, select New then Money out.
- Enter the details such as the date, total amount paid and a relevant reference.
- Enter the amount paid and choose the Dividend Liability ledger account. Do not record any VAT.
Select Save.
Once paid, the total value of all your dividend payments will clear the value of Dividend Liability ledger account. The value of the proposed divided is still reported on your balance sheet.
The value of allocated dividend is usually reported on your profit and loss.
Once you've paid the dividend, create a journal to move the value from the Dividends ledger account to a Dividend ledger account on your profit and loss. Read more on how to create a journal.
If you are not sure how to move this value to your profit and loss, you may want to speak to your accountant about which nominal code to use.
- Solution ID
- 222001000100598
- Last Modified Date
- Tue Jan 23 07:46:08 UTC 2024
- Views
- 0