Corporatefinanceinstitute com 1 The Corporate Finance Institute Accounting For more eBooks please visit

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The Corporate Finance Institute
Accounting
There are various kinds of dividends that companies may compensate 
its shareholders, of which cash and stock are the most prevalent.
Applications in personal investing
With all these debt and equity instruments in mind, we can apply this 
knowledge to our own personal investment decisions. Although many 
investment decisions depend on the level of risk we want to undertake, 
we cannot neglect all the key components covered above. Bonds are 
contractual liabilities where annual payments are guaranteed unless 
the issuer defaults, while dividend payments from owning shares 
are discretionary and not fixed. In terms of payment and liquidation 
order, bonds are ahead of preferred shareholders, which are ahead 
of common shareholders. Therefore, from an investor’s perspective, 
debt is the least risky and for companies, it is the cheapest source of 
financing because interest payments are deductible for tax purposes. 
However, debt is also the riskiest form of financing for companies 
because the corporation must uphold the contract with bondholders to 
make the regular interest payments regardless of economic situation.
Date
Explanation
Journal Entry
Declaration Date
Once the board declares a dividend, the 
company records an obligation to pay 
through a dividend payable account 
DR Retained Earnings 
CR Dividends Payable
Ex-dividend Date
The date on which a share trades without 
the right to receive a dividend that has been 
declared. Prior to the ex-dividend date, an 
investor would be entitled to dividends.
No Journal Entry 
Date of Record
The date when the company compiles the 
list of shareholders to receive dividends 
No Journal Entry
Payment Date
When the cash is actually paid to the 
shareholder
DR Dividends Payable
CR Cash 

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