If the company paid a dividend to a director, how do I properly account for that?

Hi Jille!

It depends how the dividend was paid to the director.  The most common scenario, is a cash paid dividend.  In this case, you would of course record an expense, or cheque and use a Category you set up called Dividends paid.  This account is an Equity type account.  In the equity type accounts, you should find a dividends paid account type.

I hope this helps!

Melanie

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@MelanieSchroederCPA wrote:

Hi Jille! 8 ball pool

 

It depends how the dividend was paid to the director.  The most common scenario, is a cash paid dividend.  In this case, you would of course record an expense, or cheque and use a Category you set up called Dividends paid.  This account is an Equity type account.  In the equity type accounts, you should find a dividends paid account type.

 

I hope this helps!

Melanie

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Thanks for the thorough explanations, I appreciate it.

Happy to help.

So if I write this dividend cheque, there will be no deductions such as taxes, etc correct?? I have a category called Owner's Draw-Partner Distribution - I'm assuming that would be the same as Dividends Paid....

Thanks for joining in on this thread @beaver_181. When writing a Cheque, the only taxes added or deducted would be as a result of the Sales tax code you apply. If you choose Zero-rated or Exempt as directed by your accountant, the only amount you'll be expensing is the amount of the dividend. In terms of whether your Owner's Draw-Partner Distribution account is the same as Dividends Paid, that's a question for your accountant. 

If your accountant would like to work with you in QuickBooks, you can navigate to the My Accountant tab to invite them to work on your books. You'll also find the Find a pro to help button there so you can look for a QuickBooks-certified accountant if you'd like. Perhaps @MelanieSchroederCPA or another accounting professional here in the Community will chime in again to offer you some additional advice. 

Let me know when you have technical questions related to using QuickBooks, because I'd love to give you a hand. Take care.

Thank you. I did reply to Melanie's message and thought she would be replying. @MelanieSchroederCPA Will I be hearing from her? Will she get this message as well then?

That's right.  There is no statutory remitting requirement for dividends.  Just make sure that the shareholder puts money aside for taxes if they will end up owing tax on their personal tax return, as there are taxes on that income.  You also need to prepare T5's for the company for any dividends paid to the shareholders.  The dividends also do not reduce the corporate income (just the retained earnings) so you have to remember to set aside money for the corporate tax as well.

A corporation would not have an Owner's draw-partner's distribution account in the equity section.  There would be a shareholder loan account.  (assuming you are in Canada?)

Yes I am in Canada. I changed my Owner's draw account to Shareholder Loan Account which led me to change my Owner Contribution account to Shareholder Contribution account, correct?

You could have two, but typically you don't want to have an amount owing to the company from the shareholder as the tax department views this as income to the shareholder.  For ease, people will call the draws account, Advances to Shareholder and the contributions the Loan from or Due to Shareholder.

Then at year-end you can determine how much is needed to be declared as income to the shareholder based on whether there has been more contributed or withdrawn.  If there are regular draws being made the tax department can consider this a salary/wages though so it's good to make sure there is proper documentation of the dividends or also pay some wages.  There are a lot of complex tax issues that go into this, so it's important to get the proper tax advice too!