Accounting For Shareholders’ Equity Flashcards
What happens when a company declares dividends?
A private limited company may declare dividends and make immediate payment to shareholders or at a later date.
How are increases and decreases in shareholders’ equity recorded?
Increases in the share capital and retained earnings accounts are credited while decreases are debited.
What is the double entry for recording share capital?
Dr Cash at bank (+ asset)
Cr Share capital (+ equity)
How are increases and decreases in the dividends account recorded?
Increases in the dividends account are debited while decreases are credited.
What is the double entry for declared dividends but not paid?
Dr Dividends (- equity)
Cr Dividends payable (+ liability)
What is the double entry for immediate payment of dividends?
Dr Dividends (- equity)
Cr Cash at bank (- asset)
What is the double entry when dividends are paid subsequently?
Dr Dividends payable (- liability)
Cr Cash at bank (- asset)
What is the definition of dividends in accounting?
Dividends is a contra-equity account, when increases in dividends decrease retained earnings.
What are the double entries for recording retained earnings when the business makes profits?
Dr Income summary, Dr Retained earnings (- equity), Cr Dividends, Cr Retained earnings (+ equity)
What are the double entries for recording retained earnings when the business incurs losses?
Dr Retained earnings (- equity), Cr Income summary
