Dividend , general reserves treatment in company

Dr. Finance costs

Cr. Dividends payables

General Reserves are also referred to as “ Free Reserve “. According to the Companies Act, general reserve is to be created only when there is sufficient profit in an enterprise. Hence it is clear that it is not compulsory to create general reserve.

Dr. Retained earnings

Cr. General reserves

PAT may be added to general reserves every year.

Dividends can be considered as debt due . So the liability may be created for proposed dividend either from current year profits past profits as per the board resolution and Share holders approval

Dividend is never considered as debt due.
Its a payable account and paid from the undistributed profit of the company.

Once dividend is declared it is debt due to share holders , it can't be revoked.

Read companies act once

Yes Mr. Sabhyasachi is correct. Dividends paid can be like

Dr. Retained earnings/ Finance costs

Cr. Bank 

and above entry can be used for proposed dividends.

Current or past profits can be the source of dividend.

If it become liability / debt due then then only there is meaning for payment.


1. P & L / General Reserve A/c Dr
To Proposed Dividend

2.Proposed Dividend A/c

To Bank


First entry on declaration of dividend and 2nd entry for making the payment

It's not debt due. The nomenclature is not correct.

Once the dividend is declared then it can't be revoked. It has to be paid to SH.

Read the Companies Act once

Who has told it can be revoked.Let me explain the provisions of companies act.
Sec 123 of companies act 2013
no dividend can be declared or paid by a company for any financial year except
1. out of profits of the company.
arrived at after providing for depreciation
the dividend proposed are of two types proposed and final.
2. out of money provided by the Central govt.
3. the amount of dividend including interm dividend shall be deposited in a scheduled bank in a seperate account within 5 days from the date of declaration of dividend.
So I know the basics.

What is the purpose of transferring the amount to special account if it is possible to revoke?