Cash dividend is the distribution of corporate earnings to the stockholders in the form of cash. This is the most usual form of dividends. There are 3 important dates involved with cash dividends. They are:
- Date of declaration – this is the date the formal announcement of a cash dividend was made.
- Date of record – people owning shares on this date will receive the cash dividend.
- Date of payment – this is the day the actual cash dividend is paid.
Cash dividends are usually declared as a percent of par or stated value. If a company had 20,000 shares of stock at a par vaue of $10, the entry of a 5% cash dividend would be: 20,000 x $10 x 0.05 = $10,000
For example, the photo shows the journal entries for declaration of the dividend and then the payment of the dividend. The date of declaration was November 30, 2016. The date of payment was February 10, 2017. The cash dividends will be closed to retained earnings at the end of the accounting period.