I have small small business corporation and want to pay out a dividend to shareholders. How do I do that in Simply Accounting (my version is 2007)?
What I did was set up a group account 3525 in the Retained Earnings section, then issued a cheque to the shareholder as a vendor, thereby crediting the bank account and debiting the account 3525. This results in the total retained earnings increasing by the amount of the dividend. Is this correct???
Your help would be appreciated!
You should take a look at the entry and the results again because when you enter the dividend, it will be a debit againt the total shareholder equity in the corporation. In other words there will now be less equity in the corporation and thus the equtiy will be lower.
Retained Earnings 10,000 - a credit balance
Dividend -5,000 - a debit
Current Earnings 13,000 a credit balance
Total Retained Earnings 18,000 - a credit balance
Brent - thanks for the quick response - however - I see your point that a dividend payout reduces the Total Retained Earnings. So this is what I did - please advise me if I'm wrong.
1. I created the shareholder as a vendor.
2. I entered a purchase invoice "from him" in the amount of (say) $5000, payable by cheque from the chequing account.
3. I charged the Dividends Account I created under "Retained Earnings" in the Chart of Accounts.
4. This reduced the balances of both the chequing account and the Total Retained Earnings.
I think my confusion stems from the belief that Retained Earnings is considered an asset of the corporation, rather than a liability ..... or is it?
I sincerely appreciate your input.
Hi there: Was your retained earnings account in debit balance before you issued the dividend? If so, it was actually a deficit and in that case issuing the dividend would indeed increase the deficit balance. If it was a credit balance to start with, then the balance should not increase if you post a debit to that account.
Thank you R Deering - my confusion stemmed from the belief that Retained Earnings was an asset class, and that debiting it would increase it.
I was also confused as to how exactly the process went - that is, what exactly is done in Simply Accounting so that the shareholder receives the dividend and both the bank account and the Total Retained Earnings decrease.
Also, when the T slip is issued, can Simply process it, or does it (the T-slip) need to be prepared manually for the shareholder? Another point - there appears to be a distinction now regarding dividends (i.e. eligible and non-eligible.) Which one of these is the one that a small business corporation would declare?
Again, your input is appreciated.
Hi again: The entry you made in order to pay out the dividend sounds to be correct. Retained Earnings is a "Shareholder's Equity" account and is normally a credit.
I believe that you will have to make out the T-slip for the dividend by hand. I don't think there is any process in Simply that can produce it. As for your other question regarding which kind of dividend, that would be something your Accountant would be able to advise you on. There are always different tax issues, pro and con, regarding dividends and an Accountant would be your best advisor on something like that. R Deering
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