Cash Dividends Declared Account

Question: Please Help – Accounting for cash dividends?

Prepare journal entries to record the following transactions for Skylar Corporation:

may 15 Declared a $48,000 cash dividend payable to common stockholders.
July 31 Paid the dividend declared on May 15.

Answer: Your May 15 entry is the entry where you set up the liability. The July 31 entry disposes of the liability. Therefore:

May 15
Debit – Cash Dividends 48,000
Credit – Cash Dividends Payable 48,000

This sets up the liability.

The next entry is where the actual payment occurs and the liability goes away:
July 31

Debit – Cash Dividends Payable 48,000
Credit – Cash 48,000

Once you have decided that you are going to pay the dividends, you must account for it, therefore the first entry. Then when you actually pay it, the cash is disbursed, you have the second entry.

23 November 2009 NYSE Closing Bell Agnico-Eagle Mines