How to record proposed dividends

Summary

How to record proposed dividend payments using journals in Sage Accounting.

Description

When your corporation profits, you can reinvest or distribute to shareholders. You do this through dividends, decided by the board and approved by shareholders. Your board of directors decides the amount paid. It's then agreed by your shareholders.

Resolution

How to record dividends

To make sure the amount allocated for dividends shows on your Profit and Loss.

We recommend that you:

Record the allocated dividends in two new ledger accounts as equity and a liability. This reports on your balance sheet. It remains here until the dividend's paid
Once paid, transfer the value from the balance sheet ledger accounts. Transfer 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.

Follow the steps below to record the dividends.

▼1. Create the ledger accounts for dividends

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 Settings, select Business Settings.
Select Chart of Accounts, then New Ledger Account.
Enter the details and select Save.

▼2. Record the allocated dividend amount

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.

Ledger Account	Debit	Credit	Include on VAT Return
Dividends (3201)	5000	0.00	Leave clear
Dividend liability (2231)	0.00	5000	Leave clear

The allocated dividend appears on your Balance Sheet as a liability. It also updates the Equity section of the report.

▼3. Record the dividend payments

If you have more than one shareholder, you can 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, match the payment.

In our example, the total dividend payment is £5000.

Use bank feeds to import your bank statement

When you process your imported bank transactions:

Select the Dividend Liability ledger account from the What dropdown 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 Purchase / Payment and Other Payment
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. Don't record any VAT.
Select Save.

Once paid, the total value of all your dividend payments will clear the value of the Dividend Liability ledger account. The value of the proposed dividend still shows on your balance sheet.

▼4. Move the dividend value to your profit and loss

The value of the allocated dividend reports on your profit and loss.

Once you've paid the dividend, create a journal to move the value from the Dividends ledger account. Move it to a Dividend ledger account on your profit and loss. Find out more about how to create a journal.

If you don't know how to move this value to your profit and loss, speak to your accountant. Ask which nominal code to use.