What is the Entry for Dividend in Tally?

The entry for dividends in Tally depends on whether you are the company declaring and paying the dividend or a shareholder receiving it.

• For a Company Declaring a Dividend:
  1. On Declaration Date: Debit Profit and Loss Appropriation A/c and Credit Dividends Payable A/c. On Payment Date: Debit Dividends Payable A/c and Credit Bank A/c.
  • In Tally, Dividends Payable A/c is created under Liabilities > Current Liabilities.
• For a Shareholder Receiving a Dividend:
  • On Receipt Date: Debit Bank A/c and Credit a dividend income account, typically created under Income > Indirect Income.
  • In Tally, this is a simple receipt entry.

Correct classification of these accounts is crucial for accurate financial statements and compliance.

Introduction

In the world of corporate accounting, a dividend represents a portion of a company’s profits distributed to its shareholders as a reward for their investment. While the concept is straightforward, recording it accurately in your books is paramount. For professionals using Tally Prime, understanding the correct dividend accounting entry ensures financial statements reflect true profitability, maintain compliance, and accurately track liabilities.

Whether you’re managing the books of the company issuing the dividend or an investor recording dividend income, a single misstep can ripple through your profit calculations and balance sheet. This guide will demystify the process, providing a clear, step-by-step walkthrough for both scenarios in Tally Prime.

Types of Dividend Entries in Tally

The journal entry you need depends entirely on your perspective: are you the distributor or the recipient?

1. Dividend Declared (Company’s Books)

When a company’s board of directors approves a dividend, it creates a legal obligation. This process involves two critical journal entries.

• a) When Dividend is Declared:
  At this moment, the company earmarks the profits for distribution and creates a payable.
  • Journal Entry:textProfit and Loss Appropriation A/c Dr. [To the amount declared] To Dividends Payable A/c
  • Why? This entry debits the retained earnings (via P/L Appropriation) and credits a current liability, showing that the company owes money to its shareholders.
• b) When Dividend is Paid:
  This is the settlement of the obligation when payments are made to shareholders.
  • Journal Entry:textDividends Payable A/c Dr. [To the amount paid] To Bank A/c
  • Why? This reduces the liability on the balance sheet and reduces the cash/bank balance.

2. Dividend Received (Shareholder’s Books)

For a shareholder (an individual or another business), a dividend is a source of income.

• Journal Entry for Receipt:textBank A/c Dr. [To the amount received] To Dividend Income A/c
  • Why? This entry increases your bank balance and recognises the income, which will be tallied at the year-end to calculate your total revenue.

Step-by-Step Guide to Entry Dividend in Tally

Let’s translate these journal entries into actions within Tally Prime.

For the Company Declaring a Dividend:

1. Create Ledger Accounts: First, ensure you have the necessary ledgers.
   • Dividends Payable A/C: Create this under Liabilities > Current Liabilities.
   • Profit and Loss Appropriation A/C: This is a pre-defined ledger in Tally under Capital Account.
2. Record the Declaration:
   • Go to Accounting Vouchers > Journal Voucher (F7).
   • Debit the Profit and Loss Appropriation A/c.
   • Credit them Dividends Payable A/c with the declared amount.
   • Press Enter to save.
3. Record the Payment:
   • Later, when issuing cheques/transfers, go to Accounting Vouchers > Payment Voucher (F5).
   • Debit the Dividends Payable A/c.
   • Credit the Bank A/c from which the payment is made.

For the Shareholder Receiving a Dividend:

1. Create a Ledger Account:
   • Dividend Income A/C: Create this under Income > Indirect Income.
2. Record the Receipt:
   • Go to Accounting Vouchers > Receipt Voucher (F6).
   • Debit the Bank A/c account where the money is deposited.
   • Credit the Dividend Income A/c.

Example Entries

Let’s assume a company, ABC Ltd., declares a dividend of ₹50,000. An investor, Mr. X, owns 10% of the shares and receives ₹5,000.

In the Books of ABC Ltd.:

• On Declaration Date (Journal Voucher – F7):textParticulars Amount (Dr.) Amount (Cr.) Profit and Loss Appropriation A/c 50,000 – Dividends Payable A/c – 50,000
• On Payment Date (Payment Voucher – F5):textParticulars Amount (Dr.) Amount (Cr.) Dividends Payable A/c 50,000 – Bank Account – 50,000

In the Books of Mr. X (Shareholder):

• On Receipt Date (Receipt Voucher – F6):textParticulars Amount (Dr.) Amount (Cr.) Bank Account 5,000 – Dividend Income A/c – 5,000

FAQs

Q1: Can we record an interim dividend in Tally?
A: Yes, the accounting treatment for an interim dividend (declared during the financial year) is identical to a final dividend. Use the same ledger accounts and voucher types.

Q2: Under which group does dividend payable come?
A: Dividends Payable A/c should be created under Liabilities > Current Liabilities as it is a short-term obligation expected to be settled within one year.

Q3: Is dividend income taxable?
A: For the company paying the dividend, it is an appropriation of profit after tax. For the shareholder receiving it, the tax treatment depends on local laws. In many jurisdictions, dividend income is taxable for the recipient. Always consult with a tax professional.

Conclusion

Mastering the dividend entry in Tally is a fundamental skill for any accountant dealing with corporate finances or investments. By correctly classifying the transaction—whether as a distributing company or a receiving shareholder—you ensure the integrity of your financial statements, maintain clear audit trails, and stay compliant with accounting standards.

The key is to remember the dual nature of the transaction: a liability and appropriation for the company, and pure income for the shareholder. The best way to gain confidence is to open Tally Prime and practice these entries with sample figures. This hands-on approach will solidify your understanding and make you proficient in handling all dividend-related scenarios.