Thank you for clarifying that. I thought upon looking at it later, that something was not quite right because the equity was not decreasing either!
What I am going to do is at Brucanna suggested is debit Retained Earnings and Credit Dividends in Liabilites and then debit Dividends and credit Provision for Dividends or whatever Brucanna suggested earlier to that effect! I don’t want to put the dividends in P&L Appropriation as I don’t that method works for me. Keeping dividends completely out of profit and loss makes more sense for me. Cheers for the advice. Much appreciated.
Why the two entries, just debit Retained Earnings and credit Provisions for Dividends with any payment clearing the provision account. Whats the purpose in debiting/crediting a liabilities dividend account
Public Company reports have the two (appropriations) together as they are both seen as expenses, payments out of the company. Dividends is just another name for a form of “Interest Payment”. You invest your money in a bank account and you get paid Interest. You invest your money in a company (public or private) and you get paid (hopefully) a dividend. Both are returns on capital.
Where bank interest can be a predicable set rate, dividends are an unpredictable variable rate relying on profitability, Banks/Shareholders, are both lenders of money to companies, one gets paid interest, while the other gets paid dividends - hence both are expenses. Just because the structure/terminology is different doesn’t change the underlying principle - One legal entity (individual) is lending/loaning/investing to another legal entity and receives a reward - interest/dividends/bonus shares etc.
Yes I am impressed with your graduation, perhaps a Bookkeeping Consultancy could be a diversification
Sorry I was talking about what you suggested in you first post. I was thinking more of a two step process. Declaring the dividend which is debit Retained Earnings and then credit Provision for Dividends. This declares the dividends. Then I would debit provision for dividends and credit Directors Loan Account as this is probably what I will end up doing in the future. Basically what you meant. For some reason I thought that you had mentioned a Dividends Account in addition to provision for Dividends.
Yes I understand that and technically Dividends is a payment, but what I mean is from my point of view (disregarding accounting and legal entities for the moment), is that the money is money regardless of whether its “owned” by the company or whether its paid out to my personal account. For my ease of use, I prefer not to put Dividends in the Profit and Loss as it distorts in my opinion my view of what is "MY" Profit irrespective of the legal ownership of the money at that precise moment. So basically ignoring the laws, the government, the tax man etc - I am just trying to show the accounts in a format where corporation tax is an “expense” in that I have to pay a bill to the taxman - I don’t keep that money. Whereas with Dividends - even though I as the company am “spending” that money, I still end up getting that money as the shareholder, so I like to not portray that as an expense. Legally it is, but I am not looking at it from the legal point of view, but rather how much money do I as the individual make in terms of actual company profit that I can take out.
Its more just a preference for me in how I want to view the money. I want to view it as a share of the company profits rather than as an expense.