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Dividend paid

04 October 2018

if dividend paid is not an expense then why it us entered in profit and loss account..and why it is added to net profit before tax for calculating cash flow from operating activities

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Ashwin Kumar (1234 Points)
Replied 04 October 2018

provision for dividend is added in operating cash flow since it is an expense and the actual dividend paid is not added....note it correctly. dividend paid is deducted in financing activity. in certain sums opening provision will be somewhat like 50000 and closing provision will be 50000 and dividend declared will be 55000 in that case provision that is to be added to the operating activity will be 45000 because the excess 5000 will be adjusted from current year and the actual dividend payable will be 45000. in the same case of the dividend declared is 45000 then the excess provision will be added to the next provision and an amount of rupees 55000 will be added to operating activity...i dont know how to explain it certain sums are like that. if you solve them you will have a clear understanding on dividend.

Vineeth Ajith (Final Student) (61 Points)
Replied 04 October 2018

Let me make the concept clear

When a corporation declares and pays a dividend, the dividend does not reduce the current accounting period's profit reported on the income statement. In other words, a dividend is not an expense.

Dividends will reduce the amount of the corporation's retained earnings. Retained earnings are reported in the stockholders' equity section of the balance sheet.

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.

Prakash Gehani (Consultant & Teacher(Whatsapp 8718057907) (1306 Points)
Replied 04 October 2018

Dividend is appropriation of profit. It is not debited to profit & loss a/c. instead it is shown as an appropriaton from profit under the head reserve & surplus in Equity &Liability side of BS.

Since profit given in question is after appropriaions i.e after adjusting Dividend, Reserves.
In calculation of cash flow from operating activities we take profit given in question and Add/less non cash and non operating items if profit given is question is after appropriations. Therefore we will add dividend as it is non operating item.

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