ACCOUNTING FOR DIVIDEND AND DIVIDEND DISTRIBUTION TAX
Dividend
is share of profit after tax given to shareholders (owners) of the company, it
is appropriation of profit after tax not an expense . It is clearly explained in
the below table:
Particular
|
Amount
|
Net
Profit
|
1000000
|
Less:- Income Tax
|
300000
|
Net
profit after tax
|
700000
|
Appropriation:-
Dividend
Amount
transferred to general Reserve
|
100000
600000
|
Journal for dividend
SL.NO
|
PARTICULAR
|
DEBIT
|
CREDIT
|
1
|
Dividend
A/c Dr
To Shareholders A/c
|
100000
|
100000
|
Rules for passing journal entry
Debit
Dividend
is appropriation from profit and the same is paid to shareholders as there is
outflow of funds and it is deemed to
be expense and the same is debited
Credit
Shareholders are the receiver of dividend and
they are deemed to be creditor
Computation of dividend distribution tax
Journal for Dividend Distribution Tax (DDT)
SL.NO
|
PARTICULAR
|
DEBIT
|
CREDIT
|
1
|
DDT
A/c Dr
To DDT payable A/c
|
20357.46
|
20357.46
|
Rules for passing journal entry
Debit
Dividend
distribution tax is expense so it is debited
Credit
DDT is payable to government and the account
is credited to DDT payable
Journal for transfer
of dividend and DDT to profit and loss appropriation account
SL.NO
|
PARTICULAR
|
DEBIT
|
CREDIT
|
1
|
Profit
and loss A/c Dr
To dividend A/c
To DDT A/c
|
120357.64
|
100000
20357.64
|
Rules for passing journal entry
Debit
Since
dividend is appropriated from profit and loss, the account has to be debited as
there is decrease in the account
Credit
Dividend account is closed by transfer to
profit and loss account by crediting the account,DDT is transferred to profit loss account by
crediting
Journal for payment of dividend
and DDT
SL.NO
|
PARTICULAR
|
DEBIT
|
CREDIT
|
1
|
Shareholders
A/c Dr
DDT
payable A/C Dr
To Bank A/c
|
100000
20357.64
|
120357.64
|
Rules for passing journal entry
Debit
Share
holder account is closed by debiting their account, because they are paid.
DDT
payable account is closed by debiting the account, because they are paid.
Credit
Since there is outflow of money which is an
asset the bank is credited.
the information you have updated is very good and useful, please update further.
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