How do you record a dividend payment to stockholders?
A dividend to stockholders or shareholders involves two entries. The first entry occurs on the date that the board of directors declares the dividend. In this entry the account Retained Earnings is debited and Dividends Payable is credited for the amount of the dividend that will be paid. Retained Earnings is a stockholders' equity account and Dividends Payable is a current liability account. Some corporations debit a temporary account Dividends instead of debiting Retained Earnings. Then at the end of the year, the Dividends account is closed to Retained Earnings.
The second entry occurs on the date of the payment to the stockholders. On that date the current liability account Dividends Payable is debited and the asset account Cash is credited.