Cash Dividends
Cash dividends are distributions of earnings to shareholders. Three key dates: Declaration Date (liability is created), Record Date (determines who gets the dividend — no entry), Payment Date (cash is distributed). Entry on declaration: Debit Retained Earnings, Credit Dividends Payable.
Stock Dividends
Stock dividends distribute additional shares to existing shareholders. Small stock dividend (<20-25%): recorded at market value. Large stock dividend (>20-25%): recorded at par value. Stock dividends do NOT change total equity — they just move amounts from Retained Earnings to Common Stock and APIC.
Small Stock Dividend
Company has 10,000 shares outstanding, $5 par, market price $40. Declares a 10% stock dividend (1,000 shares). Debit Retained Earnings $40,000 (1,000 × $40). Credit Common Stock $5,000 (1,000 × $5). Credit APIC $35,000.
Stock Splits
A stock split increases shares and decreases par value proportionally. A 2-for-1 split doubles shares and halves par value. No journal entry is required — just a memo entry. Total equity is unchanged.