I have one case for our members to fix out in term of the dividend

We have two respective companies (Com A and Com B)

Com A declared and paid dividend to Com B, minority shareholder, with the amount of $60,000 in cash. The Com B paid 85% of the dividend income to its shareholders.

Note: No any retained earning exists in the account as it is a new Company.

Which one is the rignt transaction? Or another is needed


Option 1: my own records

(Dr) Cash on hand------ 60,000
(Cr) Dividend income from Com A ----- $60,000

(Dr) Dividend (Balance Sheet item)----- $ 60,000*0.85
(Cr) Cash on hand---------------------------60,000*0.85

Option 2: my friend recommends

(Dr) Cash on hand------ 60,000
(Cr) Dividend income from Com A ----- $60,000

(Dr) Dividend expense(P&L item)----- $ 60,000*0.85
(Cr) Cash on hand---------------------------60,000*0.85

I think yours is better.

Dividend is a reduction to retained earnings. Dividend Expense is not the proper account to use when a company declared dividend.

Dividend account and Dividend Expense account are two different things.

It still comes out of retained earnings. You didn't say which balance sheet account. The retained earnings has to have some kind of balance in it if it's year-end, whether positive or negative, unless you hit the 1 in 3 trillion possibility of actually breaking even to the penny. If retained earnings goes negative, so be it, and it's now a deficit. Curious though, why you're paying $60,000 in dividends when you have no income.

If you prefer not messing with retained earnings until year-end, you can easily use a contra account called Cash Dividends, which is a debit balance equity account, and it sits in there until year-end. Part of the year-end closing would be to remove it from that account and then remove it from retained earnings. Cash Dividends is an account that offsets retained earnings.