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

FOR DDT CALCULATOR CLICK HERE

 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.