Dividends and Corporation Tax Expenses Sub Section on P&L

@Brucanna I was browsing some of my old posts as I sometimes had ideas in the past that I never got around to implementing and I want to get more clarification on a point you made some years back.

You mentioned “In fact I would prefer net profit before tax/dividends and net profit after tax/dividends so you can cater for dividends also. Noting that this process only applies to corporations so some sort of corporation preference setting would be required.”

What do you hope to achieve here as Dividends are not on the Profit and Loss Statement at all. I am just thinking that one of my problems is that I am finding it hard to keep track of how much I am paying out in dividends each year as its all under the BS not in profit and loss reports and the fact that I have no clear distinction between allocated and actually paid out Dividends. Your suggestion of having the Corporation Tax and Dividends together makes sense for keeping track of cashflow over the years.

However, I don’t know how your plan would work as dividends doesn’t go on profit and loss.

Corporate Taxation and Dividends are both distributions of profit. As such, they are (cash flow) expenses of the corporation, payments to external third parties. The corporation keeps the undistributed profit as retained earnings.

Interest and Dividends are both a cost of capital. The corporation borrows funds from a bank and “rewards” them with interest, or the corporation raises funds from shareholders and rewards them with dividends. Understand that I am talking in broad concept terms here and not at the specific transaction level.

There is nothing preventing you from “processing” dividends in the same way as you do corporate tax.

The required process will depend upon how the Dividends are declared (established). You have the option of taking up the Dividends as Journals (using the taxation journal) or if the dividend distributions are regular then you could process the payments directly to the “P&L”. Or a mix of both - direct payments throughout the year plus a year end adjustment Journal.

Also @dalacor, upon reviewing a P&L, the Salary and Dividend accounts will give you the total take out.

I just realised that there is in fact no distinction between Dividends and Corporation Tax as neither of them are company expenses/income. In addition, salaries are the same sort of concept.

I will try and get this to work as I think it’s a very good idea. In theory I should be able to do profit and loss reports each year seeing how much salary and dividends are drawn as opposed to allocated.

What I meant was that looking in the Dividends drill down under BS, its not quick and easy to see what is paid out per year as opposed to what is allocated. It’s like looking at your bank account with loads of transactions.

Thanks. I will see if I can get this setup.

@dalacor, just in case you didn’t realise , the COA’s P&L before T&D and P&L after T&D are 0%20COA%20New%20Total%20Button . Note how the names are underlined.

Also by inserting the last Total (P&L after T&D) it displaces / replaces the default P&L final Total title.

What names are underlined? I am not concerned about renaming Net profit to Net profit after Tax and Dividends so I don’t need to add a new total to displace the default one. My intention is just to whack the Dividends into the same section where the corporation tax is

My current format is as in the picture:

This is an example of how you can account for dividends and company tax. The Statement of Changes in Equity will adopt the wording in the journal Narration.

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I have learnt something new today. Never used the statement of changes equity! I will look into that as well. Thank you.

To clarify, in Settings > COA’s any “total” lines are identifiable by an underline - not Summary tab.

The Statement of Changes in Equity works if you are doing lump sum (once a year) allocations.
However, if you are doing multiple allocations then you will just get a listing of those allocations without any yearly total unless you use the calculator.

Thank you for clarifying that. I was wondering what was underlined.

I need to speak to my accountant how I want to do Dividends in my next financial year. Currently what I am doing is paying myself a base salary and taking out against the Directors Loan and then when I pay a Dividend I pay the Dividend off against the Directors Loan. This is probably contributing to my difficulties working out how much the company is paying me the director as a lot of the transactions are going through the Directors Loan Account not the Dividends account.

Yes, that’s why it was suggested “Or a mix of both - direct payments throughout the year plus a year end adjustment Journal.”

The “taking out” would go to the P&L Dividends account instead of the Directors Loan. The difference between the actual dividend and the year’s take out would be an EOY Journal with the Corporate tax.

You don’t have to wait until next financial year, you could just reallocate this years transactions,

Brilliant. It will be on my Xmas list of jobs to do!

@Brucanna I am going to see my accountant tomorrow to discuss this amongst other questions that I want to cover at the meeting. It will be very interesting to get this working. I never had time to do this because I spent Xmas reconciling my bank account for the last five years! That was a major job, but I am pleased with the result as I now have a monthly bank statement perfectly reconciled with what’s in Manager with the bank statement attachment!

Hopefully I will get my issues with my Salary, DLA, Dividends sorted out as I have too many things going in/out of the DLA account making it very difficult to work out what the company has actually paid me in Salary and Dividends over the years.

Now that I see how Bank Imports and Reconciliations work, I will be starting up my home accounts again and using bank imports to keep on top of my personal home expenditure. This will be a lot more efficient than my old way which is why I stopped doing my personal home accounts a long time ago as it was just too time consuming. Bank Imports, Bank Rules, Recurring Journal Entries and Recurring Purchase Invoices should reduce this to a ten minute monthly job now.

So my accountant and I will be implementing a new strategy for the next financial year to ensure that it’s much more clear what the company is spending and what I am actually earning as an employee! I think the key thing is to pay more things monthly (like my mileage expenses) reducing the need to tap into the DLA.

I have already created the Dividends Expense Account next to Corporation tax, so tomorrow we will work on moving Dividends for previous years from the Dividends Payable BS Account to the Dividends Expense Account. I think all we need to do is change the account from equity to Dividends Expense Account. But he will sort that out. :grinning:

Should be.

He said it’s ok to have the dividends in P&L, although his preference would be to have it under net profit instead of above net profit and below net profit before tax. His reasoning is that you want to take dividends out from the net profit. For the moment, I am going to leave it where it is because I am happy having it next to Corporation tax and nearer to Salary, Petrol and Home Use which is what will be on the payslip as well as Dividends.

I told him that I was going to do it as Dividends Payable (BS) and Dividends (P&L) using Journal entries. However I have just realised that if I pay a monthly dividend, I will end up with a lot of entries in Journal Entries which I don’t want. I don’t really want hundreds of entries in the Journal Entries tab because there is such a mix of accounts entered into that and it should really only be used to accrue etc.

I currently pay salary, Petrol and Home Use using Payslips Module and this enters it into employee clearing account and the relevant Profit and Loss Account. I presume that I can add Dividends to this payslip and pay through the payslip method. However, this means that the Dividends on the BS is actually in the Employee clearing account not in the Dividends Payable BS account. Not that this is an issue. It also solves and issue for me in that it makes it very easy to see what I need to pay myself as I only need to look at one total in employee clearing account.

That would be much cleaner, as it doesn’t matter about Dividends Payable (BS) as that account is only applicable on year end balance day - any unpaid dividend balance for the year.

For example - if you paid 100 per month but the year dividend was 1500, you would journal the 300 difference and combine payment of that with the next payslip.