How to record dividends vs salary in banking?

IdunnSofie · ‎March 22, 2020

Hello,

Over the tax year I've transferred money from my business account to my personal account as and when I've been paid by various clients.

At the same time, I've been running a payroll, paying myself the tax-free allowance in equal instalments.

Now I want my bank feed to reflect the salary payments to my personal account, and the rest as dividends, however I'm not really sure how to go about this? Do I create different accounts?

My old accountant set up a couple of things for me on QuickBooks, and I think they made a 'Sole Trader Current Account' (I was a sole trader until May 2019, now Limited), which I've been adding the transactions to, however I think I should maybe edit these?

Thanks so much in advance for any clarity provided!

Idunn

emmam6 · ‎November 08, 2022

Hello Community Users, We just wanted to add to this thread. Here’s what we can do to setup your dividends payment: We just need to advise that there are many ways to record dividends and to confirm with an accountant they are happy for you to record them like this

Select Chart of Accounts and click New button.

These are the things we need to do in creating a new account.

Account type could be Expense, Liability or Equity.
Detail Type can be either Partner Distributions or Owner’s Draw.
Name can be changed to what you would like it to be, example: Dividends.
Default Tax Code: Out of Scope
Save

View solution in original post

sonenshinem · ‎May 08, 2020

You can create additional accounts in Quickbooks. Pull up your Chart of Accounts and select NEW to create an additional account, filling in the parameters as appropriate.

Generally in a case like yours I would create a Liability Account. Current Liabilities and then detail type Current Liabilities and I would describe the account for what it is - Dividends to be paid, Accrual for Dividends. You can code your bank feeds to flow into that account, by ensuring that when you send money from your bank you provide an appropriate reference. You can even create a Payee for yourself called OwnerDividend and that to the bank rule.

At year end you shouuld journal the money out of the liabilities account to the retained earnings account (owner equity).

Good housekeeping on the Chart of Account and smart usage of Class Tags and Subaccount can help you understand your profitability better and can save you lots of time when it comes to filing statutory and tax reports.

If you need help, [email address removed]

emmam6 · ‎November 08, 2022

Hello Community Users, We just wanted to add to this thread. Here’s what we can do to setup your dividends payment: We just need to advise that there are many ways to record dividends and to confirm with an accountant they are happy for you to record them like this

Select Chart of Accounts and click New button.

These are the things we need to do in creating a new account.

Account type could be Expense, Liability or Equity.
Detail Type can be either Partner Distributions or Owner’s Draw.
Name can be changed to what you would like it to be, example: Dividends.
Default Tax Code: Out of Scope
Save

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How to record dividends vs salary in banking?