Journal Entries for Dividend Income

 

Dividend income is the source of earning of shareholders from investment in stocks of all companies. This is expense of company and it is given from company's total income. If you are long term shareholder and invests in stocks for getting dividend, it is good to keep record of dividend income for managing your portfolio better way and manage expenses relating to this. So, today you learn through passing the journal entries. 

Following are the main journal entries for dividend income

1. When Dividend is Declared (Accrued Dividend):

• Journal Entry:

Dividend Receivable Account Debit

Dividend Income Account Credit

Logic:

When a company declares a dividend, you record it as income because it becomes your have write. It will credit because all your income will credit and increase your intial capital.  However, since the dividend amount is not yet received, it is recorded as a receivable (asset) in debit side because you can claim for getting this asset on company. 

2. When Dividend is Received in Cash or Bank:

• Journal Entry:

Bank Account Debit

Dividend Receivable Account Credit

Dividend Receivable

Logic:

When the company declared dividend is received, the receivable (asset) is converted into cash or a bank deposit. So, your bank asset increased. So, any asset incease must debit and Dividend Receivable has decreased, so, decrease in the asset will credit. So, the earlier receivable is cleared from the books.

3. For Dividend Received Directly (Without Prior Declaration):

• Journal Entry:

Bank Account Debit

Dividend Income Account Credit

Logic:

If the dividend is received directly (e.g., without prior notification or accrual), the cash or bank balance increases, and you record the income directly since no receivable was previously recognized.

4.  If you do not claim TDS Tax credit in income tax return 

Tax Deducted at Source (TDS) on Dividend Income:

• Journal Entry:

  • TDS Expense Account Debit
  • Bank Account Debit
  • Dividend Income Account Debit

Logic:

When you receive dividends after tax deduction (e.g., TDS), the amount deposited in the bank is net of tax. The deducted tax amount is recorded as a expense ( If you do not claim the TDS tax credit in annual income tax return. 

4.  If you claim TDS Tax credit in income tax return 

Tax Deducted at Source (TDS) on Dividend Income:

• Journal Entry:

  • TDS Receivable Account Debit
  • Bank Account Debit
  • Dividend Income Account Debit

IF can claim tds credit in annual income tax return  it later as a refund or adjust it against other taxes. The total dividend income is split between the net cash received and the tax deducted.

Learn this with example 

 The journal entries with an example

I am receiving a total of ₹10,000 in dividends from infosys company in 2024-2025 and a TDS deduction of ₹1,000 which deduct by company.  because if you earned single company's dividend is Rs. 5000 , tds will deduct 10%

1. When Dividend is Declared (Accrued Dividend):

Example:

• The infosys company declares a dividend of ₹10,000 for you

Journal Entry:

• Debit: Dividend Receivable account  ₹10,000
• Credit: Dividend Income account   ₹10,000

Logic:

• When the company declares the dividend, it becomes your right to receive the amount. The dividend income is credited to the Dividend Income account. Since you haven't received the amount yet, it is recorded as a receivable, and the Dividend Receivable account is debited.

2. When Dividend is Received in Bank (After TDS Deduction):

Example:

• You receive ₹9,000 after ₹1,000 TDS deduction.

Journal Entry:

• Debit: Bank ₹9,000
• Debit: TDS Expense ₹1,000
• Credit:  Dividend Income / Dividend Receivable ₹10,000

Logic:

• The Dividend Receivable account is credited to clear the receivable when the amount is received. The Bank account is debited to show the increase in your cash balance. The TDS amount of ₹1,000 is deducted, and this is debited to the TDS expense account ( Remember, you did not claim for tax credit. 

If You Claim TDS Tax Credit in Income Tax Return (TDS on Dividend):

Example:

• You receive ₹9,000 in your bank account after ₹1,000 TDS deduction and plan to claim the TDS credit in your income tax return.

Correct Journal Entry:

• Debit: Bank ₹9,000
• Debit: TDS Receivable ₹1,000
• Credit: Dividend Income / Dividend Receivable  ₹10,000

Logic:

• The Bank account is debited with the net amount received (₹9,000).
• The TDS Receivable account is debited with ₹1,000, as you can later claim this TDS amount as a credit or refund when filing your tax return.
• The Dividend Income account is credited with the total dividend amount (₹10,000), as the income is fully recognized.

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