In accounting, dividends often refers to the cash dividends that a corporation pays to its stockholders (or shareholders). Dividends are often paid quarterly, but could be paid at other times. For a dividend to be paid, the corporation's board of directors must formally approve/declare the dividend. Hence, the board of directors may decide that a dividend will not be declared.
Definition of Dividends
It is important to note that the dividends declared and paid by a corporation are not an expense of the corporation. Rather, dividends are a distribution of the corporation's earnings. This explains why state laws likely require corporations to have a credit balance in Retained Earnings before declaring and paying dividends. Practically speaking, the corporation must also have sufficient cash available to meet its current and future needs.
Declaring a Dividend
When the board of directors declares a dividend, it will result in a debit to Retained Earnings and a credit to a liability such as Dividends Payable. When the corporation pays the dividend, Dividends Payable will be debited and Cash will be credited.