I was hoping if someone could confirm that my understanding of the timeline of declaring and paying final dividends is correct, as I'm a little unsure. I will use a company that uses a calendar year as a financial year to make the example simpler. The main thing I am unsure of is exactly when to record the dividends on the LLC books, but I believe it is in the financial year AFTER the year the profit is earned, at the time when the directors approve the dividend at the AGM?
2019 ( Jan - Dec ) Financial year - the LLC carries out business and has a profit of say $100,000 for the financial year 2019. It can use these profits to pay out dividends.
Jan 2020 - the accountant closes the books and prepares financial statements. Confirms profit of $100,000 for the financial year 2019, which means the company can issue any amount less than this as dividends.
Feb 2020 - Company holds AGM and directors approve a total dividend to be paid of $20,000. It is on this date that we the company should record a debit to retained earnings and credit to dividends payable.
Mar 2020 - Company pays out the dividend and records a debit to dividends payable and a credit to bank account.
In this way, it is the financial statements of 2020 which will reflect the dividend paid, even though the amount of the dividend is paid out of (and limited by) the profit for the financial statement for 2019.
Is that correct?
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2019 ( Jan - Dec ) Financial year - the LLC carries out business and has a profit of say $100,000 for the financial year 2019. It can use these profits to pay out dividends.
Jan 2020 - the accountant closes the books and prepares financial statements. Confirms profit of $100,000 for the financial year 2019, which means the company can issue any amount less than this as dividends.
Feb 2020 - Company holds AGM and directors approve a total dividend to be paid of $20,000. It is on this date that we the company should record a debit to retained earnings and credit to dividends payable.
Mar 2020 - Company pays out the dividend and records a debit to dividends payable and a credit to bank account.
In this way, it is the financial statements of 2020 which will reflect the dividend paid, even though the amount of the dividend is paid out of (and limited by) the profit for the financial statement for 2019.
Is that correct?
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