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    torimom1's Avatar
    torimom1 Posts: 3, Reputation: 1
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    #1

    Jun 6, 2009, 10:45 PM
    T-accounts. How do I post Paying out a $2 million cash dividend
    How do I post a company paying out a $2 million cash dividend?
    Clough's Avatar
    Clough Posts: 26,677, Reputation: 1649
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    #2

    Jun 7, 2009, 12:38 AM

    Hi, torimom!

    Would you please elaborate a bit more as to what you're meaning here? By what you've posted, it's a little bit hard to grasp what you're wanting to do.

    Thanks!
    torimom1's Avatar
    torimom1 Posts: 3, Reputation: 1
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    #3

    Jun 7, 2009, 12:52 AM

    Sorry, Trying to learn how to use the site & accounting (so confussed).
    I did not understand what it looks like with t-accounts for a transaction such as a company paying out a dividend.
    Cash CR $2 mil
    Dividends payable DR $2 mil

    is there another side to this post? How does the Owner Equity piece fit or is the Dividends payable sufficient?

    Also not sure where in the accounting equation marketable securities fit.

    my book says it is a short term asset. But if I sell $ 2 mil

    would I post it
    Cash CR $2mil
    Marketable Securities DR $2 mil
    (is the term it would be called) I thought these were the companies Assets Something like (inventory and accounts receivables sold to the bank for quick cash)
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #4

    Jun 7, 2009, 01:46 AM
    I did not understand what it looks like with t-accounts for a transaction such as a company paying out a dividend.
    Cash CR $2 mil
    Dividends payable DR $2 mil

    is there another side to this post? How does the Owner Equity piece fit or is the Dividends payable sufficient?
    Terminology. Posting is taking something from the journal and putting it into the t accounts (or ledger accounts). What you have there is an entry, not a "post." Even if you want to do the entry directly into the t accounts, it's still an entry. An entry is where you have a whole transation, with equal debits & credits, which is what you're trying to figure out. A posting is only dealing with one account at a time. We won't understand what you're asking if you use wrong terminology.

    And it's still confusing. Your entry actually would be correct for the payment itself. And really, that's what you asked - paying out a dividend. Except I have a feeling that's maybe not all you want to know. When a company declares a dividend, it's put into the dividend payable (cr) and debited to either Dividend (contra equity) or Retained Earnings, depending on how your book is doing it. (Your book should have examples.) Then later when it is paid, you are just paying a payable, like any other payable, which is what your entry above is. So that's the payment itself, but does not account for the declaration of the dividend. If you only want to record the payment, the part involving equity would have already been done prior to this point.

    Some books also do the declaration and the payment as one entry. i.e. they don't mess with the fact that dividends are always paid at a later date and are just trying to over-simplify. In which case the dividend payable wouldn't be used. You'd have a dr to dividend or retained earnings (again depending on how your book does it) and cr to cash.

    You really need to check your book and see how they are doing it. You're getting into stuff that is taught by more than one method and we can't know.

    Also not sure where in the accounting equation marketable securities fit.

    my book says it is a short term asset.
    Yes, it's a current asset.

    But if I sell $ 2 mil

    would I post it
    Cash CR $2mil
    Marketable Securities DR $2 mil
    Why "but"? You say that as though being a current asset is making a difference to that entry or that it means something is wrong. Nothing wrong with trading one current asset for another. The entry's correct.

    (is the term it would be called) I thought these were the companies Assets Something like (inventory and accounts receivables sold to the bank for quick cash)
    Only because you're stuck on a limited number of current assets. More than those exist. By referring to selling them to the bank, I think you're referring to liquidity. Liquidity is how easily they can be turned to cash. Cash being the most liquid of course. Marketable securities are very liquid, almost by definition. If they're "marketable," they can be turned to cash easily. Inventory can't be sold to a bank the last I looked. (Why does a bank want your inventory? At least the receivables they can collect.) There are other current assets, and whether they can be sold to a bank does not define a current asset. It means they will be received, realized or used within one year. Nothing to do with selling anything. And liquidity is not relevant to how you do a journal entry.

    A journal entry is based on two things only: what kind of account is it (asset, liability, equity, revenue, expense), and whether you want to increase it or decrease it. Sub-divisions like current assets aren't relevant, and liquidity is definitely not relevant. All debits & credits are doing are keeping things on the correct side of the equation, and assets are on the debit side.
    torimom1's Avatar
    torimom1 Posts: 3, Reputation: 1
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    #5

    Jun 7, 2009, 02:32 AM

    Morgaine300,
    I thank you for the explanations. While looking at the book I did not find the examples of many entries. This accounting lingo is like learning a whole new language.

    I have been stuck on the number of assets that exist as well as the other parts of the accounting equation pertaining to the stakeholder/owner equity side. I am hoping to find a guide that lists the correct terms for the various accounts.

    the term Marketable Securities confused me when the book explained it as "commercial paper" which was previously defined as What Does Commercial Paper Mean?
    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates. "


    The book did not show an entry for this and I got this confused with stocks. I was looking to put it on the other side of the accounting equation. I am grateful you all are out here. Thank you again for your time and explanations.

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