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Chapter 12

Dividends

3.1 Interim and final dividends

The amount paid to the company’s shareholders as a return for investing in the
company is known as a dividend.

 Many listed companies may pay dividends in two instalments. The first
instalment is paid during the financial year and is known as an interim dividend.
The second instalment is usually paid after the end of the financial year and is
known as a final dividend.

 The total of the dividends paid in a financial year is included in the statement of
changes in equity as a reduction in retained earnings.

 It is important that you understand that dividends paid by a company are not
an expense included in the statement of profit or loss. They are an
appropriation of profit by the company to its shareholders.

Note that dividends are accounted for in the financial statements on a
‘cash paid’ basis. This usually means that, within the financial
statements of a given year, a company will account for the final dividend
of the previous year, together with the interim dividend for the current
year.

The accounting entries to record dividends paid are as follows:

Debit Retained earnings

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