Question

Once a company makes a profit it must decide of whether and how to return that profit back to its owners, its stockholders.   Explain and define the terms associated with dividends, including the accounting for said dividends.

Answer 1

If the company makes a profit and decided to distribute the same to there shareholders than the best way to distribute is the dividend to the owner's or its stackholders. Dividend will be distributed with 2 methods one is cash dividend and other is stock dividend in the cash dividend direct cash is given to the shareholders and in the stock dividend there is fresh new shares are issued to existing sharehoders.

Accounting entries are for the cash dividend are done as below,

1	Retained Earning or Dividend Account
	To Dividend Payable
2	Dividend Payable
	To Cash

In the stock dividend the in place of the cash we put the new share capital