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samisam-yahoo-com
Level 1

How to treat dividends paid. At the moment they are under ‘expenses’ but that’s not right is it?

 
Solved
Best answer February 07, 2019

Accepted Solutions
Anonymous
Not applicable

How to treat dividends paid. At the moment they are under ‘expenses’ but that’s not right is it?

Dividends are an 'equity' type transaction - not an expense.  They can be charged directly to Retained Earnings, but better to create a new equity account for 'dividends paid' and code it there.

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5 REPLIES 5
Anonymous
Not applicable

How to treat dividends paid. At the moment they are under ‘expenses’ but that’s not right is it?

Dividends are an 'equity' type transaction - not an expense.  They can be charged directly to Retained Earnings, but better to create a new equity account for 'dividends paid' and code it there.

s-pointon
Level 1

How to treat dividends paid. At the moment they are under ‘expenses’ but that’s not right is it?

how do you add a new equity account for dividends in QuickBooks. I am currently filing all my dividend payments under directors dividends under expenses. can I change this?
Malcolm Ziman
Level 10

How to treat dividends paid. At the moment they are under ‘expenses’ but that’s not right is it?

I have seen that dividends are an Income Statement (P&L) item, a reduction of net profit. It only affects equity in that a lower net profit is added to retained earnings in the balance sheet. IMO, It would not be incorrect to post dividends as a below-the-line Other Expense type item

Anonymous
Not applicable

How to treat dividends paid. At the moment they are under ‘expenses’ but that’s not right is it?

That would result in the correct closing retained earnings, but by my accounting it would not be a correct presentation as it would understate current year net income.
CD23
Level 1

How to treat dividends paid. At the moment they are under ‘expenses’ but that’s not right is it?

Dividends paid/payable are indeed a distribution of retained earnings and s/be in the Equity section.

MikeinBC's suggestion is indeed sensible and what should happen in my view (to separately identify dividends paid/payable simply and easily)...alas you can't currently do it! (I have posted feedback to QuickBooks asking why and if they will revise software to accommodate and await a response)....see below:

 

Following error messages come up when I try to set-up as (1) New A/C and (2) sub-A/C

(1)

Account

Something’s not quite right

There can be only one account of detail type Retained Earnings.

Account Type Equity

*Detail Type Retained Earnings

QuickBooks Online Plus adds this account when you create your company.

Retained earnings tracks net income from previous financial years.

 

QuickBooks Online Plus automatically transfers your profit (or loss) to Retained earnings at the end of each financial year.

 

*Name

Dividends Paid & Payable

Description

Dividends Paid & Payable

Is sub-account

Enter parent account

Default VAT Code

No VAT

Balance

 

(2)

Account

Something’s not quite right

Accounts with detail type Retained Earnings cannot have sub-accounts.

Account Type Equity

*Detail Type Retained Earnings

QuickBooks Online Plus adds this account when you create your company.

Retained earnings tracks net income from previous financial years.

 

QuickBooks Online Plus automatically transfers your profit (or loss) to Retained earnings at the end of each financial year.

 

*Name

Dividends Paid & Payable

Description

Dividends Paid & Payable

Is sub-account

Retained Earnings

Default VAT Code

No VAT

Balance

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