Dividends

Definition

Dividends are distributions of a portion of a company's earnings to its shareholders. They can be issued in the form of cash payments, additional shares, or other property.

5 Must Know Facts For Your Next Test

1. Dividends are typically declared by a company's board of directors and must be approved by shareholders.
2. They appear on the Statement of Owner’s Equity as reductions in retained earnings.
3. Cash dividends impact a company’s cash flow and are shown in the financing activities section of the Statement of Cash Flows.
4. Stock dividends do not affect total equity but redistribute amounts within equity accounts.
5. The declaration date, record date, and payment date are key dates related to dividend distribution.

Review Questions

• What financial statement shows the impact of dividends on retained earnings?
• How do cash dividends affect a company's Statement of Cash Flows?
• What are the key dates involved in the dividend distribution process?

Related terms

Retained Earnings:

Portion of net income that is retained by the company instead of being distributed as dividends.

Declaration Date: The date on which a company announces it will pay a dividend.

Ex-Dividend Date: The cutoff date after which new buyers will not receive the declared dividend.