Page 189 - F3 -FA Integrated Workbook STUDENT 2018-19

Capital structure and finance costs

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.

 Dividends paid by a company are not an expense included in the statement
of profit or loss. They are an appropriation of profit from retained earnings by
the company to its shareholders and will be disclosed in the statement of
changes in equity.

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

Credit Bank

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