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Chapter 11

Accounting for dividends paid

3.1 Dividends

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

 Dividends are often paid 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 to 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.

Note that dividends are accounted for in the financial statements on
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
accounting year.

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