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    Controller Library Value Pack
    CFO Library Value Pack
    Accounting Standards Library
    Tuesday
    Mar112014

    Where do dividends appear in the financial statements?

    A dividend is a payment made to shareholders that is proportional to the number of shares owned. A dividend is not an expense to the paying company, but rather a distribution of its retained earnings.

    There are four components of the financial statements. The following table shows how dividends appear in or impact each one (if at all):

    Type of Financial Statement
    Impact of Dividends
    Balance sheet

    Will reduce the balance in the Cash and Retained Earnings accounts once the dividends have been paid
    Income statement Dividends have no impact here, since they are not an expense
    Statement of cash flows

    Reported as a use of cash in the Cash Flow from Financing Activities section
    Statement of retained earnings* Reported as a reduction in retained earnings

    * Also known as the statement of changes in stockholders' equity

    A brief narrative description of a dividend issuance may also be included in the notes that accompany the financial statements, though these notes may not be included if the statements are only issued for internal use.

    Before dividends are paid, there is no impact on the balance sheet. Paying the dividends reduces the amount of retained earnings stated in the balance sheet. Simply reserving cash for a future dividend payment has no net impact on the financial statements.

    If a dividend is in the form of more company stock, it may result in the shifting of funds within equity accounts in the balance sheet, but it will not change the overall equity balance. See stock dividends and stock splits for more information. 

    Related Topics

    Does a dividend reduce profit?
    How do I account for cash dividends?
    What are dividends?
    What is the accounting for a small stock dividend?
    Why use a stock dividend?

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