How to Account for Scrip Dividends

When a publicly-held corporation has the earnings to justify issuing a dividend to stockholders but does not have the cash, the board of directors may decide to issue a scrip dividend. A scrip dividend is essentially a promissory note to the stockholders in lieu of cash payment on stocks held. Both the issuer of the scrip dividend and the recipient of the scrip dividend should record the transaction on the accounting books.

Create a Notes Payable to Stockholders account in the Payables section of the general ledger.

Decrease the Retained Earnings account in the Equity section of the general ledger by the total amount of the scrip dividends issued. Generally Accepted Accounting Principles (GAAP) considers a decrease to an equity account a “debit.”

Increase the Notes Payable to Stockholders account by the total amount of the scrip dividends issued. GAAP considers an increase to a payables account a “credit.”

Create a Dividends Income account in the Extraordinary income section of the general ledger. Because dividends received do not represent income from operations, you should include dividend payments in the extraordinary income section.

Create a Scrip Dividends Receivable account in the Asset section of the general ledger.

Record the total value of the scrip dividend received as an increase to the Dividend Income account. GAAP considers an increase to an income account a “credit.”

Record the total value of the scrip dividend received as an increase to the Scrip Dividends Receivable account. GAAP considers an increase to a receivables account a “debit.”

Tip

If you are not certain how to record issuance or receipt of scrip dividends, consider hiring an accounting professional to assist you.

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Things Needed

  • General ledger

About the Author

Kaye Morris has over four years of technical writing experience as a curriculum design specialist and is a published fiction author. She has over 20 years of real estate development experience and received her Bachelor of Science in accounting from McNeese State University along with minors in programming and English.

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