Dividends - how to pay them off?

Question asked by Clive Truby 10 years ago

Hello I understood the 'old' way - but things move on I guess and I am attempting to use the 'new' tool.

As I see it, the new tool uses Journals; something that I've never felt the need to look at (other than Assets - and that seems to deal with itself automatically) and I can see now by Div payments in a Journal - goodo! I have 'edited' an entry and then clicked 'post journal' - it did things and then said that I now had a Debit and Credit - so I figure that's a move forward - but here's where the KB stops... I am confused. Surely if this money has now been 'debited' it should reduce my bank balance? Because it hasn't? How can I check that the accounts know that the money has been 'spent' and that the running bank balance takes account of that?

Appreciate any input anyone may care to give; as you can tell, it would be wise to explain the path as you would to a 8 year old.

Thanks

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4 Replies

Hi Clive - in the past the old dividend tool created a bill showing the dividend due to the shareholder (as a supplier) and so the debt would show under "Trade Creditors" on the Balance sheet, and you could make a payment to pay off the bill, just like any other supplier.

Unfortunately, debts due to shareholders are not "Trade Creditors" for accounting regulation and so the year end accounts would always have to be adjusted to separate any unpaid dividends.

The journal entry therefore now puts the debt in the correct account "Jo Smith dividends" so, when making a payment, instead of picking a "supplier" to pay off a bill, you merely point the transaction at this new account.

There is no need for you to amend or do your own journal but I've just noticed the guide makes reference to using one, which I think should be ignored, just explain any bank payment in the normal way.

In the case of director/shareholders, if you want to get the debt into their director's loan account then go to the Director's Loan account bank account and make a payment out of there to pay off the dividend debt. This effectively moves it to the loan account.

Best answer
10 years ago

Many thanks Paul - I appreciate you filling in the holes of the official KB.

I'm afraid I'm not finished; here's what I have so far: Generate the Dividend via the tool. This will add the info to my default Journal...

You are saying to: Go to 'Manage Money'>Money Out and fill in the details... In the next page it rightly wants me to allocate the amount to the correct item...

BUT: It has 'starred' the "TO" field so I must select something! I select the Director's name - it then automatically gives me all the items that that account has - but these are expenses etc - the Dividend is no longer there (as we now know) - so how can I allocate it to the amount in the Journal? I'll note that under "Account" I can pick the "dividend" account - but since the 'name ' has to picked - surely I run the risk of things not tallying up?

Forgive my ignorance, but my IT background precludes me from second guessing instructions, so I'd really appreciate you continuing to be patient!

ATB

10 years ago

Hi Clive - that's no problem, this is not the easiest topic.

What's sometimes not obvious when explaining bank transactions is that there's an either/or, ie when you enter a "To" name you can either pick documents (bills & expenses) already entered and waiting to be paid off OR generate a new document by filling in the Transaction boxes, so, in this case you do the OR.

Hope that helps Paul

10 years ago

I sense the fog lifting... thanks Paul! :-)

So I pick the Director's name - erase the automatic attempt to help me in filling amounts in existing 'bills' and expenses' since that's not relevant and select the Dividends account I would assume then that the Bank Balance will drop accordingly and the Journal (and the Gov) is satisfied - all good?!

I spy a 'User defined Lookup Rule' at the bottom of this page - is that of any productive use in the future?

Again, appreciate the assistance. cdt

10 years ago

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