We're a headhunter agency that connects US businesses with elite LATAM professionals who integrate seamlessly as remote team members — aligned to US time zones, cutting overhead by 70%.
We’ll match you with Latin American superstars who work your hours. Quality talent, no time zone troubles. Starting at $9/hour.
Start Hiring For FreeRecording dividend payouts accurately is critical for any business, yet the process can be confusing.
Luckily, with QuickBooks, you can easily calculate and record dividend payouts by following a straightforward formula and setup.
In this post, we'll walk through the key steps for determining dividend payout ratios, calculating per share distributions, recording dividend payables/payments, tracking reinvested dividends, and more using QuickBooks best practices.
This section provides an overview of dividend payouts, why they matter for business financial reporting, and key prerequisites in QuickBooks for recording them properly.
Dividend payouts refer to cash payments made by a corporation to its shareholders from its profits. The payout ratio, calculated by dividing dividends per share by earnings per share, helps assess financial health and management priorities.
Tracking dividends is important for shareholders to evaluate investment performance. High payout ratios may indicate mature companies focused on shareholder returns. Lower ratios suggest reinvesting profits for growth.
Accurately recording dividends paid is critical for financial reporting and tax compliance. Dividend payments reduce the retained earnings account, so incorrect amounts will distort equity calculations.
For C-corps and S-corps, dividends paid to shareholders are not tax-deductible, so must be tracked separately from business expenses. Owners who receive dividends also must report these earnings on their personal tax returns.
Before recording dividends in QuickBooks, key setup steps include:
With this foundation setup, dividends can then be calculated based on policies and ownership stakes. QuickBooks can help automate this process for accurate financial statements.
To properly record dividend payments in QuickBooks, you'll need to set up the necessary accounts first. Here are the steps:
Click the "Lists" menu and select "Chart of Accounts."
Click the "Account" button, and then click "New."
Click the "Type" field and select "Other Current Liability." Enter "Provision for Dividend" in the Name field.
Repeat steps 2-3 to create a "Dividends Payable" account as an Other Current Liability.
Create an Expense account called "Dividend Expense."
Once the accounts are set up, you can record dividend declarations and payments:
To record dividend declarations:
To record dividend payments:
For example, if the company declares a $1,000 dividend, you would:
And when paying out the dividend:
Having dedicated dividend accounts allows you to accurately track dividends from declaration to payment. Let me know if you need any clarification or have additional questions!
The formula to calculate dividend payments is:
Annual net income - Net change in retained earnings = Dividends paid
To break this down:
Annual net income is the company's total net profit for the year before dividends are paid out. This can be found on the income statement.
Net change in retained earnings refers to the change in the company's retained earnings account balance over the past year. This measures how much of the company's net income was retained rather than paid out. An increase in retained earnings means less dividends were paid. This can be found on the balance sheet.
Dividends paid is the total amount of dividends the company paid to shareholders over the past year.
For example:
So in summary, this simple formula allows you to calculate total dividend payments for a fiscal year based on the company's net profit and how much was retained vs paid out.
After a company declares a dividend, the accountant records the dividend payment in the company's books by debiting retained earnings and crediting cash.
Specifically, the steps are:
This reduces both the company's retained earnings and its cash account by the amount of dividends paid to shareholders.
For example, if a company declares $100,000 in shareholder dividends, the journal entry would be:
Account | Debit | Credit |
---|---|---|
Retained Earnings | $100,000 | |
Cash | $100,000 |
Recording dividends this way shows that the company is using its accumulated profits (retained earnings) to make the dividend payments in cash. It decreases the company's assets by the cash paid out, and also reduces the equity account for the earnings that were retained and now distributed.
This allows the financial statements to accurately reflect the payment and impact of dividend distributions each period. Companies typically include dividend payments in their statement of retained earnings and statement of cash flows.
To record a dividend payout in QuickBooks, follow these steps:
Go to the Company menu and select Make General Journal Entries.
Select the account from which you will pay the dividend. This is usually the Retained Earnings account.
Enter the dividend amount as a debit.
Select the Dividends Payable account and enter the dividend amount as a credit.
In the memo field, enter details about the dividend such as declaration date, record date, payment date, and dividend rate per share.
Click Save & Close.
This records the dividend liability on the declaration date. On the payment date, you will:
Go to Banking > Write Checks
Select the Dividends Payable account and enter the total dividend amount.
Print and send dividend checks to shareholders.
Recording dividends this way updates the correct balance sheet accounts and allows you to track dividend payments over time.
This main section will provide a step-by-step walkthrough of how to properly calculate and record dividend distributions in QuickBooks based on payout ratios and outstanding shares.
The first step is identifying the dividend amount, declaration date, payment date, account balances and other data needed to calculate the payouts. Specifically, you will need:
Gather this information before proceeding to calculate the total dividend payout.
Payout ratios compare dividends paid to net income generated. To use payout ratios to determine the total dividend:
For example, if net income was $100,000 and target payout was 50%, total dividends would be $50,000.
Payout ratios provide a quick way to calculate dividends, ensuring alignment with profitability.
Once the total payout is known, the distribution per outstanding share needs to be calculated.
To determine the per share distribution:
For example, with $50,000 in total dividends and 50,000 outstanding shares, the per share distribution would be $1.00
Accurately calculating this piece ensures each shareholder receives the proper pro-rata distribution.
With the per share distribution figured, the next key step is recording the dividend payable and cash dividend payment transactions in QuickBooks properly.
When the dividend is declared:
On payment date:
This properly updates the books and balances the transactions.
Following this entire process correctly allows you to seamlessly record dividend payouts in QuickBooks.
Companies may provide shareholders the option to reinvest dividends to purchase additional shares. This section explains how to record reinvested dividends accurately in QuickBooks.
Reinvested dividends refer to dividend payments that are not paid out to shareholders in cash. Instead, the dividend amount is reinvested to purchase additional shares of the company's stock. This increases the shareholder's equity stake in the business.
Reinvested dividends impact shareholder equity and retained earnings. They represent an equity investment and must be recorded properly to avoid inflating retained earnings.
Follow these steps to record reinvested dividends in QuickBooks:
This method correctly records the reinvestment without inflating retained earnings.
QuickBooks can generate detailed reports on dividend reinvestment activity:
These reports allow financial teams to track reinvestments for reporting purposes.
It's important to record reinvested dividends using Memorized Transactions, not through the Enter Dividends workflow.
The Enter Dividends workflow automatically credits Retained Earnings without a corresponding debit. This overstates retained earnings.
By contrast, Memorized Transactions allow manual entry of the reinvestment debit to offset the credit to Retained Earnings. This prevents double-counting.
Following the steps above will accurately record reinvested dividends in QuickBooks.
In addition to dividends earned from stock ownership, companies may receive interest and other investment income. This section outlines how to accurately record these transactions in QuickBooks.
Properly establishing separate income accounts and items for each type of investment income is critical for accurate reporting in QuickBooks.
Saving templates for recurring transactions for interest, dividends, and other conventional investment income streamlines recording it.
This subsection will show you how to enter interest and dividend income into QuickBooks, ensuring it reflects correctly in your financial statements.
Proper categorization of investment income is essential for tax reporting. Learn the best practices for categorizing such income in QuickBooks.
Accurately recording all investment income in QuickBooks provides critical transparency into a company's fiscal health and supports accurate financial statements and tax compliance. Following the best practices outlined above helps streamline this process.
In closing, accurately recording dividend payouts and related investment income in QuickBooks requires understanding key concepts, calculations and features. Please consult an accounting professional for assistance.
This article covered the essential calculations, transactions and capabilities in QuickBooks to properly track dividends, stock reinvestments and investment income. The key takeaways include:
For further guidance, please see Intuit's support documentation or consider engaging a QuickBooks accounting professional or financial advisor for help. Some additional resources include:
See how we can help you find a perfect match in only 20 days. Interviewing candidates is free!
Book a CallYou can secure high-quality South American for around $9,000 USD per year. Interviewing candidates is completely free ofcharge.
You can secure high-quality South American talent in just 20 days and for around $9,000 USD per year.
Start Hiring For Free