I am setting up a new client in QB and they pay themselves some dividends, all suggested by the Accountant. In the past on older clients I have just posted it to DLA account, but this one said there has to be a separate account in QB under the equity section in COA.
They are a Ltd company in their first year, so I suppose I want to make sure it is set up correctly from the beginning. In Sage I post them to Dividends in the COA, which is where the Accountant told me to post it for that particular client. QB isn't quite set up the same as Sage but I can add accounts to the COA quite easily.
Any thoughts anyone where I should post it as I really can't decide what to do for this one. (Maybe I need a glass of wine)!
If the accountant said it needs to go separately as an equity account I would set up a new Equity account in the COA and call it something like Dividends drawn/paid? So I assume you would then Cr Bank and Dr Dividends?
If I drank I would join you in the glass of wine! (Having to sit through footie matches on tele tonight!)
In my couple of Limited company clients, neither of them take dividends, so I haven't actually done it any way To be honest I probably would have stuck it in the DLA account to keep it simple. It gets terribly messy when there are too many accounts in the COA, and I've seen some messy ones! lol
I'm outnumbered in my house as well....I wouldn't be if my two daughters were still at home, but one moved out two years ago and the other is out at her boyfriends....so I'm on here! I don't mind footie really....actually I'm in Dave's (from Training Link) Fantasy Euro 2012 League...lol
Can Directors pay themselves dividends throughout the year? If so, are they taking them from profits for the year just gone, or in anticipation of future profit?
Shareholders are paid dividends based upon the prev year profit. If the dividend was not taken when due I suppose that's why it's taken throughout the following year.
If the prev year dividend has already been taken, then any further monies taken during the year which is said to be a dividend based on future profits must surely be treated as a loan from the company until the future profits/dividends are known.
I think the idea in Sage etc is to pay from P&L into Dividends acc. It can then be distributed from Dividends acc to the various shareholders.
If no profit was made, no dividend is due.
Btw, Dividends are paid to Shareholders, not Directors. A director can be a shareholder and usually is in small companies.
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This is just my opinion. I could be wrong, so please seek further advice.
:edited to correct formatting due to being posted on mobile app.
-- Edited by Wonnov Menny on Monday 11th of June 2012 09:06:25 AM
Dividend it due based upon the date it is declared. This can be during the year or at the year end.
Of course what most accountants do is declare the dividend at the year end once they know what the profits are then predate the relevant dividend warrants. If the accounting year spans 2 tax years the dividend may be split between the tax year to utilise the shareholders basic rate bands (this is also subject to dividend waivers and available distributable profits) and again the dividend warrants are usually pre dated.
There is nothing to stop the client declaring dividends during the year though they need to ensure there is sufficient distributible profits at the time so that the dividends are legal (this is when it is important that management accounts are prepared to support the assertion that distributable profits are available to declare the dividend). In practice most people leave it to their accountant to sort. The "dividend" is taken to directors/shareholders loan ac as a cash advance as the monies are withdrawn and the accountant clears out the cash withdrawn by declaring a dividend at the year end or some other date during the year (hopefully putting the directors/shareholders loan account back into credit at the year end or certainly doing so within 9 months of the year end to avoid any CT consequences)
To be honest I probably would have stuck it in the DLA account to keep it simple. It gets terribly messy when there are too many accounts in the COA, and I've seen some messy ones! lol
