[dfedee]

What is the accounting treatment to record accrued dividends

[morgaine300]

Anything that is "accrued" means something where the money is happening at a later point in time. Usually it's expenses or revenues which have not been paid for yet, but it can be something like dividends also. You're recording an event that has already happened, but the money exchange has not.

The only thing that would make dividends "happen" and therefore need recording is declaring them. When dividends are declared, they need recorded on the books, but have not been paid yet. Things that are not paid always go into a payable account, because those represent money that is owed. Accounts payable is just for your every-day vendors and suppliers, and dividends payable needs its own account. So call it dividends payable.

Now what you would debit depends on method. Theoretically it should be put into a Cash Dividends account, which is a contra equity account. Dividends reduce Retained Earnings. In order to reduce an equity account, you debit, and since that's a negative account, it's a contra account. At year-end it would be closed to retained earnings by crediting the dividend back out and debited the retained earnings. That results in the reduction of retained earnings.

But another short-cut method is to debit it directly out of retained earnings. I prefer not doing it that way. (If this is for school, for homework, you need to do it the way the book says.)

[Glagee]

How to accrue dividends