To journalize means to record an accounting transaction in a journal entry in your company’s accounting records. A company journalizes a semi-annual dividend on the dividend declaration date and again on the payment date. The declaration date is the date on which a company announces the semi-annual dividend to shareholders and becomes legally obligated to pay the dividend. A company distributes cash to shareholders on the dividend payment date, which occurs after the declaration date. You can calculate the amount of your company’s semi-annual dividend payment to determine the amount to journalize.
Divide the amount your company has allocated for annual dividends per share by 2 to calculate your semi-annual dividends per share. For example, if your company has allocated $1 per share in annual dividends, divide $1 by 2 to get 50 cents per share in semi-annual dividends.
Multiply the semi-annual dividend per share by the number of shares your company has outstanding to calculate the total semi-annual dividend payment. Continuing with the example, assume your company has 1 million shares outstanding. Multiply 50 cents, or $0.50, by 1 million to get a $500,000 semi-annual dividend payment.
Debit the retained earnings account in a journal entry by the amount of your semi-annual dividend payment on the declaration date. A company pays dividends out of its retained earnings account. A debit reduces this account. In this example, debit retained earnings by $500,000.
Credit the dividends payable account by the same amount in the same journal entry on the same date. A credit increases dividends payable, which is a liability account that shows the amount of dividends your company owes shareholders. In this example, credit dividends payable for $500,000.
Debit dividends payable by the amount of the semi-annual dividend payment in a new journal entry on the payment date. The debit decreases dividends payable to show that you no longer owe the dividends. In this example, debit dividends payable for $500,000 in a new journal entry.
Credit the cash account by the same amount in the same journal entry. Unlike the dividends payable account, the cash account is reduced by a credit. In this example, credit cash by $500,000 to show that you distributed $500,000 in semi-annual dividends.