What is Dividend Accounting?
Dividend accounting is the set of rules and journal entries used to record the declaration, distribution, and payment of dividends to shareholders. Dividends are a distribution of retained earnings, not an expense, and they reduce equity once declared.
How It Works
- The board of directors proposes a dividend and shareholders approve it at the general assembly.
- On the declaration date, debit retained earnings and credit dividends payable, creating a liability.
- On the payment date, debit dividends payable and credit cash.
- Disclose total dividends per share and the basis of distribution in the notes.
Saudi Context
Saudi joint-stock and listed companies pay dividends after deducting statutory reserve transfers. ZATCA does not impose withholding tax on dividends paid to Saudi or GCC shareholders, but a 5% withholding applies to dividends paid to non-resident foreign shareholders unless reduced by a tax treaty.
Example
A Riyadh-listed company declares a SAR 1.5 per share dividend on 10 million shares. On the declaration date, it debits retained earnings SAR 15 million and credits dividends payable SAR 15 million. Payment clears the liability.