The total lamount of dividends paid during a period is shown on the Profit and Loss Statement for that period, since they are paid before the calculation of the Retained Profit. Since a P&L Statement is for a period, then all items on it should start at zero again for the next period.
However, the accounts representing the recipients of the dividends are on the Balance Sheet - since shareholders are the owners of a limited company, these accounts you mention should be Drawings accounts? Like Capital, Drawings accounts do not get zeroed, and they will show the cumulative amount paid to each shareholder since the company started.
[Edited for rewording]
-- Edited by Rob-f58049 on Friday 13th of April 2012 02:16:39 PM
I have a quick question on a limited company balance sheet. At the moment the balance sheet is showing a dividend amount in brackets. Can anyone tell me what the accountants will do with this figure in the year end accounts?
I understand that this should be the figure of any dividends paid out in the year - however, this figure is more than the years dividend pay out. I'm I correct in assuming that the accountants should raise a journal at year end to clear down the dividend accounts? Should these accounts be at a nil balance at the begining of each year?
Do you mean that you have a dividends payable account on the balance sheet which is showing a credit balance? This would come about if you journalled a dividend between dividends P&L and a dividends liability account on the balance sheet. If this has not been actually paid, then the balance would just remain as it is on the balance sheet. It would work similar to a directors loan account where (for example) salary has been calculated but not paid.
The question might be interpreted in different ways, so if this hasn't helped please supply further info.
Hi, Sorry I haven't explained it very well - throughout the year I have made dividend payments to shareholders and the this is shown as a debit balance on an account is sage in each shareholders name. I wanted to know what the accountants do with these accounts at the year end - do these accounts get set back to nil each year end so that the account should show how much has been paid out over the current year only?
If someone could explain to me what happens to dividend payments that you have made during the year in the year end accounts that might clear things up for me - Thanks
I wanted to know what the accountants do with these accounts at the year end - do these accounts get set back to nil each year end so that the account should show how much has been paid out over the current year only?
The accountant will automatically treat any brought forward balances on these dividends accounts as being part of the brought forward profit and loss reserve figure.
Ideally, the balances on these accounts would be cleared down and journalled to the profit and loss reserve code. That would make the balance sheet report more useful as users could easily identify the dividends that had been paid during the current financial year.
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Pearce & Co - Chartered Accountant and Chartered Tax Adviser
Ah.....Sam, it sounds like the payments have been Cr Bank Dr Shareholders (being the named accounts you mention on the balance sheet).
So, if this is the case, you need to journal the following:-
Cr Shareholders Account the amount paid in the year (sounds like you have to credit a few different accounts for each shareholder that was paid in the year)
Dr Dividends on the P&L
This should leave the balance as zero on the balance sheet (in the named shareholders accounts) and show the total amount of dividends on the P&L. As someone else mentioned, this figure will be cleared at the year end and appear as a single figure at the bottom of the balance sheet as 'Profit and Loss' or similar.
