Posting journal sets to create a dividend
If you’re a limited company shareholder, the company may declare a dividend that isn’t going to be paid out of the company’s bank account immediately. In this situation, you will need to post journal entries to create the dividend in your FreeAgent accounts, and show the money the company owes you in respect of that dividend as part of your director’s loan account. This is also known as posting a set of dividend journals.
How to post a set of dividend journals
To create a set of dividend journals, simply follow these steps:
1 Navigate to ‘Accounting’ and ‘Journal entries'
2Add new journal entries
Select the ‘Add new journal entries’ button on the ‘Journal entries' page.
If you can’t see this button, you will need to ask your accountant (or the person who set up your FreeAgent account) to give you access to posting journal entries.
3Enter the details of the journal set
Enter an overarching description for the entries (e.g. ‘Dividend entry’) in the description box at the top of the form and enter the date on which the dividend was declared. This is important not only for the company accounts, but because dividends form part of your own personal income and must be declared on your Self Assessment tax return for the correct tax year.
Completing the first line of the journal set
In the first line of the journal set, choose the code ‘908 - Dividend’ from the ‘Code’ drop-down menu. Next, select the user to whom the dividend was paid from the ‘User’ drop-down menu.
If your company has more than one shareholder, you’ll need to post each shareholder’s dividend individually by completing a pair of journal entries for each shareholder. Anyone who receives dividends should be set up as either a shareholder, employee or director in the Users area of FreeAgent.
You may want to enter a description for the individual entry (e.g. ‘Dividend declared) in the ‘Additional information’ box.
Finally, enter the amount of the dividend that was declared for this user in the ‘Debit’ field.
Completing the second line of the journal set
In the second line of the journal set, choose the code ‘907 - Director’s loan account’ from the ‘Code’ drop-down menu. Select the same user as you did for the dividend entry in the first line of the journal set.
You may want to enter a description for the entry in the ‘Additional information' box.
Finally, enter the same dividend amount in the ‘Credit’ field.
4 Balance the journal sets
The debit and credit sides of the journal set must balance, which means that there must be the same amount on each side of the journal set. When the journal set balances, you will see a difference of £0.00 displayed in green beneath the journal entries.
If the journal set does not balance, you’ll see a negative figure displayed in red beneath the journal entries. You won’t be able to complete the entry until the journal set balances.
5 Select ‘Create journals’
When you’re happy with everything you’ve entered and your journal set balances, select ‘Create journals’. If you’re the only shareholder in the company, there’s nothing more for you to do. However, if more than one shareholder is being paid a dividend, you’ll need to select ‘Add new journal entries’ from the ‘Journal entries’ area and follow these steps again. Remember to select the right user name and enter the correct amount for each journal set you post.
That’s it, you’ve posted journal sets to create a dividend!
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