Companies usually distribute dividends to their shareholders in cash, but they sometimes give them stock instead.

Dividends of any kind, cash or stock, represent a return of profits to the company owners, so they reduce the retained earnings account in the stockholders' equity section of the balance sheet.

After all, retained earnings is simply the company's accumulated profits. To understand the accounting for a stock dividend, it helps to take a quick look at how a cash dividend affects the balance sheet. How that breaks down per share is irrelevant to the accounting.

The balance sheet remains balanced. A stock dividend, by definition, doesn't involve cash, so it has no effect on the cash account. In fact, a stock dividend doesn't affect assets at all, because while the company gives out more stock, the overall value of the company doesn't change.

The accounting occurs entirely in the equity section of the balance sheet. Accounting rules recognize two kinds of stock dividends: A "large" stock dividend is any distribution that would send enough new stock into circulation that it would significantly reduce the share price.

Do Stock Dividends Affect the Retained Earnings Account? | eHow

The general rule of thumb defines a large stock dividend as one that increases the number of outstanding shares by 20 percent to 25 percent. Anything that isn't a large dividend is a small one.

Dividend declared vs. paid? | AnalystForum

In a large stock dividend, the company determines the total value of the dividend by multiplying the number pre market trading hours etrade new shares to be distributed by the par value of the stock.

A stock's par value is a nominal face value -- often a penny or less per share -- that's required by law in many states. The balance sheet retained earnings difference cash dividends affect in balance. With a small stock dividend, the company determines the total value of the dividend by multiplying the number of new shares to be distributed by the current market price of the shares -- not the retained earnings difference cash dividends affect value.

The balance sheet stays balanced. Cam Merritt is a writer and editor specializing in business, personal finance and home design.

He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA alpari uk binary options methods robodrill the University of Iowa.

Skip to main content. Accounting for a Cash Dividend To understand the accounting for a stock dividend, it helps to take a thinkorswim forex commission look at how a cash dividend affects the balance sheet.

Large Dividends A stock dividend, by definition, doesn't involve cash, so it has no effect on the cash account. Large Stock Dividends In a large stock dividend, the company determines the total value of the dividend by multiplying the number of new shares to be distributed by the par value of the stock.

Small Stock Dividends With a small stock dividend, the company determines the total value of the dividend by multiplying the number of new shares to be distributed by the current market price of the shares -- not the par value.

Stock Splits and Stock Dividends Financial Accounting for MBAs, Fourth Edition; Peter Easton, et al. About the Author Cam Merritt is a writer and editor specializing in business, personal finance and home design. Suggest an Article Correction. More Articles What Happens to Retained Earnings When a Dividend Is Paid?

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What Happens to Retained Earnings When a Dividend Is Paid? | edegawiwajy.web.fc2.com

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