Dividends Payable

Intermediate

Dividends payable is a liability representing dividends that a company's board has declared but not yet paid to shareholders.

Dividends are not a liability until they are formally declared. Once the board of directors declares a dividend, the company has an obligation to pay it, so it records a liability on the balance sheet and reduces retained earnings by the same amount.

For example, on 15 March a company declares a dividend of 0.50 per share on 20 million shares, payable on 30 April. On 15 March, it records dividends payable of 10 million as a current liability and reduces retained earnings by 10 million. When the cash is paid on 30 April, the liability is removed and cash falls by 10 million.

Dividends payable is usually a current liability, because dividends are typically paid within a few weeks of being declared.

If a company's year-end falls between the declaration date and the payment date, dividends payable will appear on its balance sheet. If a dividend is proposed but not yet declared at the year-end, it is not recorded as a liability; it is usually disclosed in the notes instead.

For worked examples and full lessons, visit notesbysara.org.