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Financial Statements
• Financial Statements are the end products of
accounting process and are prepared at end of
the accounting period to reveal the financial
position of the enterprise at a particular date and
the result of its business operations preparing an
accounting period.
• It is a statement of assets, liabilities and equities
of a business and it is prepared to show the
financial position of the company at particular
date.
Financial Statements
• The balance sheet of a company is prepared as
per the formal prescribed in part I of Schedule III
of the Companies Act, 2013.
• As per Section 2(40) of the Companies Act, 2013
Financial Statements includes:
• Balance Sheet or Position Statement
• Statement of Profit and Loss or Income
Statement
• Notes to Accounts.
• Cash Flow Statement.
balance sheet
• A balance sheet gives a statement of a business’s
assets, liabilities and shareholders equity at a
specific point in time.
• They offer a snapshot of what your business
owns and what it owes as well as the amount
invested by its owners, reported on a single day.
• A balance sheet tells you a business’s worth at a
given time, so you can better understand its
financial position.
At contents of Balance Sheet
• An asset is a resource controlled by the
enterprise as a result of past events , which
future economic benefits are expected to flow to
the enterprise.
• Liabilities is a present obligation of the enterprise
arising from past events, the settlement of which
is expected to result in an outflow from the
enterprise of resources embodying economic
benefits.
• Equity is the residual interest in the assets of the
enterprise after deducting all its liabilities.
Balance Sheet
Particulars Note
No.
Figures as at the
end of current
reporting period
Figures as at the
end of previous
reporting period
I. EQUITY AND LIABILITIES
1) Shareholder’s Funds
(a) Share Capital
(b) Reserves and Surplus
(c) Money received against share warrants
(2) Share application money pending allotment
(3) Non-Current Liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
(c) Other Long term liabilities
(d) Long term provisions
(4) Current Liabilities
(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
Total
II.Assets
(1) Non-current assets
(2) (a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long term loans and advances
(e) Other non-current assets
(2) Current assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short-term loans and advances
(f) Other current assets
Some Importance Headings
Particulars Main heading Sub heading
current investments assets cash and cash equivalents
deferred tax liability equity and liability non current liability
plant and equipment assets non current assets
goodwill assets non current assets
capital work in progess assets non current assets
trademark assets non current assets
deferred tax assets assets non current assets
loose tools assets current assets
security deposits assets non current investments
stock in trade assets current assets
Statement of Profit and Loss:
• It is a statement prepared to show the result
of business operations during an accounting
period.
• It shows the operating performance of a
company during the accounting period.
• A Statement of Profit & Loss of a Company is
prepared as per the format prescribed in Part
II of Schedule III of the Companies Act, 2013.
Particulars Note No.
I Revenue from operations (gross)
II Other income
III Total revenue (1+2)
VI Expenses
(a) Cost of materials consumed
(b) Purchases of stock-in-trade
(c) Changes in inventories of finished goods, work-in progress and
stock-in-trade
(d) Employee benefits expense
(e) Finance costs
(f) Depreciation and amortisation expense
(g) Other expenses
Total expenses
V Profit before exceptional and extraordinary items and tax (III-IV)
VI Extraordinary items
VII Profit / (Loss) before extraordinary items and tax (V+VI)
VIII Extraordinary items
IX Profit before tax (Vl (-/+)VIII)
X Tax expense:
(I) Current tax expense for current year
(II) Deferred tax
XV Profit (Loss) for the period (XI + XIV)
XVI Earnings per equity share:
(1) Basic
(2) Diluted
Some Important
pariculars main heading sub heading
audit fees expenses other expenses
wages salary bonus expenses
employees benefit
expenses
cost of raw material expenses cost of production
interest income income other income
bad debts recovered income other income
advertisement expenses expenses other expenses
contribution to EPF expenses
employees benefit
expenses
sale of scrap income revenue from operations
power and electricity expenses other expenses
insurance expenses other expenses
True/ False
1. Financial Statements are the end products of
accounting process
2. An asset is future economic expense are
expected to outflow to the enterprise.
3. Section 2(40) of the Companies Act, 2013
describes about Financial Statements
4. Fund flow statement is a part of financial
statement
1. T
2. F
3. T
4. f
balance sheet ,Asset, Liabilities, III ,
Equity
• balance sheet of a company is prepared as per the
formal prescribed in part I of Schedule of the
Companies Act, 2013
• An ……..is a resource controlled by the enterprise,
which expected future economic benefits
• ………….is a present obligation of the enterprise arising
from past events,
• is the residual interest in the assets of the enterprise
after deducting all its liabilities
• A ………..gives a statement of a business’s assets,
liabilities and shareholders equity at a specific point in
time
• III
• Asset
• Liabilities
• Equity
• balance sheet
• Financial Statements does not includes:
A. Balance Sheet or Position Statement
B. Statement of Profit and Loss or Income
Statement
C. Notes to Accounts.
D. Fund Flow Statement
• 1 D
Fill in the blanks
1. ……………statements are the basic and formal annual report.
2. Financial statements include …………and Balance sheet.
3. Income statement and ………are the financial statements.
4. The object of preparation of balance sheet is to ascertain the…….
5. Income statement is prepared to ascertain______.
6. Share capital appears under the head _____________
7. Capital reserve is shown under_______________ head.
8. Debit balance of statement of profit and loss shall be shown as
_____________figure under surplus head.
9. 9. Loans which are repayable within__________ months are called
as short borrowings.
10. Fixed assets are classified as tangible and____________ term
assets.
1. Financial
2. Statement Of Profit and Loss
3. Position statement
4. Financial status Of the enterprise
5. Surplus of the enterprise
6. Shareholders' fund
7. Reserves and Surplus
8. Loss
9. 12
10. Intangible assets.
MAINTENANCE OF BOOKS OF
ACCOUNTS
• As per Section 128 of the Companies Act, 2013, Every
company shall prepare and keep at its registered
office,all books of account and other relevant books
and papers and financial statements for every financial
year which give a true and fair view of the state of the
affairs of the company , and
• Such books shall be kept on accrual basis and according
to the double entry system Of accounting:
• books of account Of every company relating to a
period of not less than eight financial years
immediately preceding a financial year.
COMPUTATION OF MANAGERIAL
REMUNERATION
• Managerial remuneration in simple words is the
remuneration paid to managerial personals.
Here, managerial personals mean directors
including managing director and whole-time
director, and manager.
• Managerial Remuneration is calculated as a
percentage on profit.
• Total managerial remuneration payable by a
public company, to its directors, managing
director and whole-time director and its manager
in respect of any financial year:
permissible managerial remuneration
payable under the Companies Act 2013
Condition Max Remuneration in any financial year
Company with one Managing
director/whole time director/manager
5% of the net profits of the company
Company with more than one Managing
director/whole time director/manager
10% of the net profits of the company
Overall Limit on Managerial Remuneration 11% of the net profits of the company
Remuneration payable to directors who are neither managing directors nor whole-time
directors
For directors who are neither managing
director or whole-time directors
1% of the net profits of the company if
there is a managing director/whole time
director
If there is a director who is neither a
Managing director/whole time director
3% of the net profits of the company if
there is no managing director/whole time
director
Limit of Remuneration
•Where the effective capital is: Limits of yearly remuneration
Negative or less than 5 Crores 60 Lakhs
5 crores and above but less than 100
Crores
84 Lakhs
100 Crores and above but less than 250
Crores
120 Lakhs
250 Crores and above 120 Lakhs plus 0.01% of the effective
capital in excess of 250 Crores
Effective Capital
Determination of Remuneration:
• The remuneration payable to the director shall
be determined by:
1. The articles of the company
2. A resolution
3. Special resolution if articles require it to be
passed in the general meeting
Manner of Payment of Remuneration
• Remuneration of Director or Manager may be
paid below mention ways
1. Monthly Payment
2. Specified Percentage Of Profit
3. Partly By One And Partly By Specified
Percentage Of Profit
Items to excluded from profits on
calculation of managerial remuneration
1. Premium on shares or debentures
2. Profit on sale of forfeited shares
3. Profits of capital nature including those from the
sale of the undertaking of the com pany.
4. Profits of capital nature from the sale of any
immovable property or fixed assets.
5. Any change in carrying amount of an asset or
liability recognized in equity reservesing surplus
in profit and loss account measurement of the
asset or liability at air value.
true and fair , double entry ,accrual
,registered office,8
1. As per Section 128 of the Companies Act, 2013,
Every company shall prepare and keep at
its…………
2. financial statements give a …………view of the
state of the affairs of the company
3. Companies books shall be kept on…………Basis.
4. Method of Companies books shall be kept on
…………………system Of accounting.
5. books of account Of every company relating to a
period of not less than …………..financial years
immediately preceding a financial year
1. registered office
2. true and fair
3. accrual basis
4. double entry
5. 8
Interest on debenture
• The rate of interest is a prefix value to the debenture, say 9%
Debentures and, therefore, is payable even if the company incurs a
loss. It is a charge against profit. Interest payment may be subject to
tax deducted at source (TDS).
• We show Interest on Debentures as ‘Finance Cost’ in Statement of
Profit and Loss.
• Interest on Debentures is a charge against the profit of
the company.
• We calculate Interest on Debentures at a fixed rate of interest on
the nominal value.
• Interest is not payable on debentures issued as collateral security.
• The interest rate is prefixed.
• We need to transfer the balance in Interest on Debentures to the
Statement of Profit and Loss at the end of the year.
• If the amount of interest accrued and due is not paid, it
is known as Interest Accrued and Due or Interest
Outstanding.
• If the date of payment of interest and accounting date
is different, we will credit the Interest Accrued and Due
account at the end of the year to maintain accounting
record on an accrual basis.
• We show the Interest Accrued (whether due or not) on
debentures is under the head ‘Current Liabilities,’ and
sub-head ‘Other Current Liabilities’
Accounting Treatment for Interest on
Debentures
• The below mentioned journal entries are
documented in the books of an enterprise in
association with the interest on debentures :
• When interest is due :
Debenture Interest A/cDr.
To Income Tax payable A/c
To Debentureholders A/c
(Amount of interest due on debenture and tax deducted at
source)
• For payment of interest to debentureholders :
Debenture-holders A/c Dr.
To Bank A/c
(Amount of interest paid to debentureholders)
• On transfer debenture Interest Account to statement of Profit and
Loss :
Statement of Profit and Loss Dr.
To Debenture Interest A/c
(Debenture interest transferred to profit and loss A/c)
• On payment of tax deducted at source to the Government :
Income Tax Payable A/c Dr.
To Bank A/c
(Payment of tax deducted at source on interest on debentures)
Dividend
• A dividend is a distribution made to shareholders
• that is proportional to the number of shares owned. A
dividend is not an expense to the paying company, but
rather a distribution of its retained earnings.
• Dividend refers to a reward, cash or otherwise, that a
company gives to its shareholders. Dividends can be issued
in various forms, such as cash payment, stocks or any other
form.
• A company’s dividend is decided by its board of directors
and it requires the shareholders’ approval.
• However, it is not obligatory for a company to pay dividend.
• Dividend is usually a part of the profit that the company
shares with its shareholders.
Types Of Dividend
1. Cash dividends: These are the most common type of
dividend, and they are those paid out in the national
currency of the firm, typically by electronic transfer or
cheque. Cash dividends are usually taxable to the
recipient in the year they are paid.
2. Stock dividends: These are dividends that are paid out in
the form of additional shares of stock from the
corporation, or a subsidiary corporation.
3. Property dividends: These dividends are paid out in the
form of assets from the corporation.
4. Interim dividends: These are dividends which are made
before a company's annual general meeting (AGM) and
final financial statements are finalised.
Recording of Dividend
• Before dividends can be paid, the board of directors must declare
them so they can be recorded in the corporation’s minutes book.
Three dividend dates are significant:
• Date of declaration. The date of declaration indicates when the
board of directors approved a motion declaring that dividends
should be paid. The board action creates the liability for dividends
payable (or stock dividends distributable for stock dividends).
• Date of record. The board of directors establishes the date of
record; it determines which stockholders receive dividends. The
corporation’s records (the stockholders’ ledger) determine its
stockholders as of the date of record.
• Date of payment. The date of payment indicates when the
corporation will pay dividends to the stockholders.
Treatment of Dividend
Type of Financial Statement
Impact of Dividends
Balance sheet Will reduce the balance in the Cash
and Retained Earnings accounts once
the dividends have been paid
Income statement Dividends have no impact here, since
they are not an expense
Statement of cash flows Reported as a use of cash in the Cash
Flow from Financing Activities section
Statement of retained earnings* Reported as a reduction in retained
earnings

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Financial statement

  • 1.
  • 2. Financial Statements • Financial Statements are the end products of accounting process and are prepared at end of the accounting period to reveal the financial position of the enterprise at a particular date and the result of its business operations preparing an accounting period. • It is a statement of assets, liabilities and equities of a business and it is prepared to show the financial position of the company at particular date.
  • 3. Financial Statements • The balance sheet of a company is prepared as per the formal prescribed in part I of Schedule III of the Companies Act, 2013. • As per Section 2(40) of the Companies Act, 2013 Financial Statements includes: • Balance Sheet or Position Statement • Statement of Profit and Loss or Income Statement • Notes to Accounts. • Cash Flow Statement.
  • 4. balance sheet • A balance sheet gives a statement of a business’s assets, liabilities and shareholders equity at a specific point in time. • They offer a snapshot of what your business owns and what it owes as well as the amount invested by its owners, reported on a single day. • A balance sheet tells you a business’s worth at a given time, so you can better understand its financial position.
  • 5. At contents of Balance Sheet • An asset is a resource controlled by the enterprise as a result of past events , which future economic benefits are expected to flow to the enterprise. • Liabilities is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. • Equity is the residual interest in the assets of the enterprise after deducting all its liabilities.
  • 6. Balance Sheet Particulars Note No. Figures as at the end of current reporting period Figures as at the end of previous reporting period I. EQUITY AND LIABILITIES 1) Shareholder’s Funds (a) Share Capital (b) Reserves and Surplus (c) Money received against share warrants (2) Share application money pending allotment (3) Non-Current Liabilities (a) Long-term borrowings (b) Deferred tax liabilities (Net) (c) Other Long term liabilities (d) Long term provisions (4) Current Liabilities (a) Short-term borrowings (b) Trade payables (c) Other current liabilities (d) Short-term provisions Total
  • 7. II.Assets (1) Non-current assets (2) (a) Fixed assets (i) Tangible assets (ii) Intangible assets (iii) Capital work-in-progress (iv) Intangible assets under development (b) Non-current investments (c) Deferred tax assets (net) (d) Long term loans and advances (e) Other non-current assets (2) Current assets (a) Current investments (b) Inventories (c) Trade receivables (d) Cash and cash equivalents (e) Short-term loans and advances (f) Other current assets
  • 8. Some Importance Headings Particulars Main heading Sub heading current investments assets cash and cash equivalents deferred tax liability equity and liability non current liability plant and equipment assets non current assets goodwill assets non current assets capital work in progess assets non current assets trademark assets non current assets deferred tax assets assets non current assets loose tools assets current assets security deposits assets non current investments stock in trade assets current assets
  • 9. Statement of Profit and Loss: • It is a statement prepared to show the result of business operations during an accounting period. • It shows the operating performance of a company during the accounting period. • A Statement of Profit & Loss of a Company is prepared as per the format prescribed in Part II of Schedule III of the Companies Act, 2013.
  • 10. Particulars Note No. I Revenue from operations (gross) II Other income III Total revenue (1+2) VI Expenses (a) Cost of materials consumed (b) Purchases of stock-in-trade (c) Changes in inventories of finished goods, work-in progress and stock-in-trade (d) Employee benefits expense (e) Finance costs (f) Depreciation and amortisation expense (g) Other expenses Total expenses V Profit before exceptional and extraordinary items and tax (III-IV) VI Extraordinary items VII Profit / (Loss) before extraordinary items and tax (V+VI) VIII Extraordinary items IX Profit before tax (Vl (-/+)VIII) X Tax expense: (I) Current tax expense for current year (II) Deferred tax XV Profit (Loss) for the period (XI + XIV) XVI Earnings per equity share: (1) Basic (2) Diluted
  • 11. Some Important pariculars main heading sub heading audit fees expenses other expenses wages salary bonus expenses employees benefit expenses cost of raw material expenses cost of production interest income income other income bad debts recovered income other income advertisement expenses expenses other expenses contribution to EPF expenses employees benefit expenses sale of scrap income revenue from operations power and electricity expenses other expenses insurance expenses other expenses
  • 12.
  • 13. True/ False 1. Financial Statements are the end products of accounting process 2. An asset is future economic expense are expected to outflow to the enterprise. 3. Section 2(40) of the Companies Act, 2013 describes about Financial Statements 4. Fund flow statement is a part of financial statement
  • 14. 1. T 2. F 3. T 4. f
  • 15. balance sheet ,Asset, Liabilities, III , Equity • balance sheet of a company is prepared as per the formal prescribed in part I of Schedule of the Companies Act, 2013 • An ……..is a resource controlled by the enterprise, which expected future economic benefits • ………….is a present obligation of the enterprise arising from past events, • is the residual interest in the assets of the enterprise after deducting all its liabilities • A ………..gives a statement of a business’s assets, liabilities and shareholders equity at a specific point in time
  • 16. • III • Asset • Liabilities • Equity • balance sheet
  • 17. • Financial Statements does not includes: A. Balance Sheet or Position Statement B. Statement of Profit and Loss or Income Statement C. Notes to Accounts. D. Fund Flow Statement
  • 19. Fill in the blanks 1. ……………statements are the basic and formal annual report. 2. Financial statements include …………and Balance sheet. 3. Income statement and ………are the financial statements. 4. The object of preparation of balance sheet is to ascertain the……. 5. Income statement is prepared to ascertain______. 6. Share capital appears under the head _____________ 7. Capital reserve is shown under_______________ head. 8. Debit balance of statement of profit and loss shall be shown as _____________figure under surplus head. 9. 9. Loans which are repayable within__________ months are called as short borrowings. 10. Fixed assets are classified as tangible and____________ term assets.
  • 20. 1. Financial 2. Statement Of Profit and Loss 3. Position statement 4. Financial status Of the enterprise 5. Surplus of the enterprise 6. Shareholders' fund 7. Reserves and Surplus 8. Loss 9. 12 10. Intangible assets.
  • 21. MAINTENANCE OF BOOKS OF ACCOUNTS • As per Section 128 of the Companies Act, 2013, Every company shall prepare and keep at its registered office,all books of account and other relevant books and papers and financial statements for every financial year which give a true and fair view of the state of the affairs of the company , and • Such books shall be kept on accrual basis and according to the double entry system Of accounting: • books of account Of every company relating to a period of not less than eight financial years immediately preceding a financial year.
  • 22. COMPUTATION OF MANAGERIAL REMUNERATION • Managerial remuneration in simple words is the remuneration paid to managerial personals. Here, managerial personals mean directors including managing director and whole-time director, and manager. • Managerial Remuneration is calculated as a percentage on profit. • Total managerial remuneration payable by a public company, to its directors, managing director and whole-time director and its manager in respect of any financial year:
  • 23.
  • 24. permissible managerial remuneration payable under the Companies Act 2013 Condition Max Remuneration in any financial year Company with one Managing director/whole time director/manager 5% of the net profits of the company Company with more than one Managing director/whole time director/manager 10% of the net profits of the company Overall Limit on Managerial Remuneration 11% of the net profits of the company Remuneration payable to directors who are neither managing directors nor whole-time directors For directors who are neither managing director or whole-time directors 1% of the net profits of the company if there is a managing director/whole time director If there is a director who is neither a Managing director/whole time director 3% of the net profits of the company if there is no managing director/whole time director
  • 25. Limit of Remuneration •Where the effective capital is: Limits of yearly remuneration Negative or less than 5 Crores 60 Lakhs 5 crores and above but less than 100 Crores 84 Lakhs 100 Crores and above but less than 250 Crores 120 Lakhs 250 Crores and above 120 Lakhs plus 0.01% of the effective capital in excess of 250 Crores
  • 27. Determination of Remuneration: • The remuneration payable to the director shall be determined by: 1. The articles of the company 2. A resolution 3. Special resolution if articles require it to be passed in the general meeting
  • 28. Manner of Payment of Remuneration • Remuneration of Director or Manager may be paid below mention ways 1. Monthly Payment 2. Specified Percentage Of Profit 3. Partly By One And Partly By Specified Percentage Of Profit
  • 29. Items to excluded from profits on calculation of managerial remuneration 1. Premium on shares or debentures 2. Profit on sale of forfeited shares 3. Profits of capital nature including those from the sale of the undertaking of the com pany. 4. Profits of capital nature from the sale of any immovable property or fixed assets. 5. Any change in carrying amount of an asset or liability recognized in equity reservesing surplus in profit and loss account measurement of the asset or liability at air value.
  • 30. true and fair , double entry ,accrual ,registered office,8 1. As per Section 128 of the Companies Act, 2013, Every company shall prepare and keep at its………… 2. financial statements give a …………view of the state of the affairs of the company 3. Companies books shall be kept on…………Basis. 4. Method of Companies books shall be kept on …………………system Of accounting. 5. books of account Of every company relating to a period of not less than …………..financial years immediately preceding a financial year
  • 31. 1. registered office 2. true and fair 3. accrual basis 4. double entry 5. 8
  • 32. Interest on debenture • The rate of interest is a prefix value to the debenture, say 9% Debentures and, therefore, is payable even if the company incurs a loss. It is a charge against profit. Interest payment may be subject to tax deducted at source (TDS). • We show Interest on Debentures as ‘Finance Cost’ in Statement of Profit and Loss. • Interest on Debentures is a charge against the profit of the company. • We calculate Interest on Debentures at a fixed rate of interest on the nominal value. • Interest is not payable on debentures issued as collateral security. • The interest rate is prefixed. • We need to transfer the balance in Interest on Debentures to the Statement of Profit and Loss at the end of the year.
  • 33. • If the amount of interest accrued and due is not paid, it is known as Interest Accrued and Due or Interest Outstanding. • If the date of payment of interest and accounting date is different, we will credit the Interest Accrued and Due account at the end of the year to maintain accounting record on an accrual basis. • We show the Interest Accrued (whether due or not) on debentures is under the head ‘Current Liabilities,’ and sub-head ‘Other Current Liabilities’
  • 34. Accounting Treatment for Interest on Debentures • The below mentioned journal entries are documented in the books of an enterprise in association with the interest on debentures : • When interest is due : Debenture Interest A/cDr. To Income Tax payable A/c To Debentureholders A/c (Amount of interest due on debenture and tax deducted at source)
  • 35. • For payment of interest to debentureholders : Debenture-holders A/c Dr. To Bank A/c (Amount of interest paid to debentureholders) • On transfer debenture Interest Account to statement of Profit and Loss : Statement of Profit and Loss Dr. To Debenture Interest A/c (Debenture interest transferred to profit and loss A/c) • On payment of tax deducted at source to the Government : Income Tax Payable A/c Dr. To Bank A/c (Payment of tax deducted at source on interest on debentures)
  • 36. Dividend • A dividend is a distribution made to shareholders • that is proportional to the number of shares owned. A dividend is not an expense to the paying company, but rather a distribution of its retained earnings. • Dividend refers to a reward, cash or otherwise, that a company gives to its shareholders. Dividends can be issued in various forms, such as cash payment, stocks or any other form. • A company’s dividend is decided by its board of directors and it requires the shareholders’ approval. • However, it is not obligatory for a company to pay dividend. • Dividend is usually a part of the profit that the company shares with its shareholders.
  • 37. Types Of Dividend 1. Cash dividends: These are the most common type of dividend, and they are those paid out in the national currency of the firm, typically by electronic transfer or cheque. Cash dividends are usually taxable to the recipient in the year they are paid. 2. Stock dividends: These are dividends that are paid out in the form of additional shares of stock from the corporation, or a subsidiary corporation. 3. Property dividends: These dividends are paid out in the form of assets from the corporation. 4. Interim dividends: These are dividends which are made before a company's annual general meeting (AGM) and final financial statements are finalised.
  • 38. Recording of Dividend • Before dividends can be paid, the board of directors must declare them so they can be recorded in the corporation’s minutes book. Three dividend dates are significant: • Date of declaration. The date of declaration indicates when the board of directors approved a motion declaring that dividends should be paid. The board action creates the liability for dividends payable (or stock dividends distributable for stock dividends). • Date of record. The board of directors establishes the date of record; it determines which stockholders receive dividends. The corporation’s records (the stockholders’ ledger) determine its stockholders as of the date of record. • Date of payment. The date of payment indicates when the corporation will pay dividends to the stockholders.
  • 39. Treatment of Dividend Type of Financial Statement Impact of Dividends Balance sheet Will reduce the balance in the Cash and Retained Earnings accounts once the dividends have been paid Income statement Dividends have no impact here, since they are not an expense Statement of cash flows Reported as a use of cash in the Cash Flow from Financing Activities section Statement of retained earnings* Reported as a reduction in retained earnings