Cash dividends are paid from retained earnings or accumulated profits. It is the profit not distributed as dividend in previous years.

Cash dividends can be paid even if company incurs loss in current year.

Journal Entries

Retained Earnings                            DR

Dividend Payable                                    CR

(To record the liability for dividend payment)

Dividend Payable                             DR

Cash                                                           CR

(To record payment of cash dividend)


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