Overview:

Recording a dividend liability and payment in Zumzum Financials involves several steps to ensure accurate financial reporting. Once your board of directors approves the dividend amount and it is agreed upon with shareholders, you need to document this transaction in the system. Although dividends typically appear on the Profit and Loss report, Zumzum Financials tracks them through the Balance Sheet, where they are recorded under nominal codes in the Capital and Reserve and Liability sections.

Start by setting up the necessary nominal codes for dividends if they are not already in your chart of accounts. Record the dividend amount with a manual journal entry, which updates the Balance Sheet. When you make the payment, post a Bank Payment transaction to reduce both the bank account and the Dividend Liability balance. Finally, transfer the remaining balance from the Dividend nominal account to Retained Earnings/Profit at the start of the new fiscal year to ensure accurate financial reporting.

How to Record a Dividend Liability and Dividend Payment in Zumzum Financials

Once your board of directors has decided and agreed your Dividends amount and agreed that with your shareholders, you will be ready to record the transaction in Zumzum Financials.

Although Dividends should appear on the Profit and Loss report, after the net profit figure, Zumzum Financials does not support this capability.

Dividend entries in Zumzum Financials should be posted to nominal codes in the Capital and Reserve and a Liability sections of the Balance Sheet report.  The Dividend will remain on the Balance Sheet report until it is paid.

We recommend the dividend value in the Capital and Reserve section of the Balance Sheet report be moved to the Retained Earnings/Profit nominal code.

1. Create the dividend nominal codes in your chart of accounts.

Before you record dividends in Zumzum Financials, you should create the required nominal codes.

If you already have the following nominal codes in your chart of accounts, then you may move the next sections, otherwise, you should create new nominal codes. Please consult with your accounting to confirm if you need to create new nominal codes.

Follow the steps in article on how to create a new Nominal Account to add your new nominal codes. 

If you are using the Zumzum Financials default chart of accounts,  we suggest you use the following nominal codes:

Type	Nominal Category	Sub Category	Nominal account Name	Nominal Account Code
Balance Sheet	Capital & Reserves	Reserves	Dividends	3201
Balance Sheet	Current Liabilities	Creditors: Short Term	Dividend Liability	2290

 

Once you have completed this step and have all the necessary nominal codes, please proceed to the next step.

2. Record the proposed dividend as a manual journal entry.

Once you have decided on your dividend amount, you should record this in Zumzum Financials. When your manual journal entry is posted, the value appears on the Liability and Capital and Reserves section of your balance sheet report.

Below is an example of the proposed dividend journal entry using the value of 10000.

N/C	Name	Details	VAT	Debit	Credit
3201	Dividends	Dividend 2016 YE	No Vat	10000.00
2290	Dividend Liability	Dividend 2016 YE	No VAT		10000.00

 

Once you have posted your journal entry for the amount of dividend to be paid, please review your Trial Balance and Balance Sheet to confirm the results are as you expected.

You are now ready to proceed to the stage of paying your dividend. .

3. Pay the dividend with a Bank Payment transaction

Once you are ready to pay the dividend, you should to post a Bank Payment transaction to the Dividend Liability nominal code. This transaction will reduce the balance of the bank account and also the balance of the Dividend Liability nominal code.

Below is an example of you paying a dividend of 10000.

Bank	Date	N/C	Details	Net	T/C	Tax
1200	Payment date	2290	Payment of dividend	10000.00	T9	0.00

 

Once you have posted your Bank Payment, please review your Bank Account Balance, Trail Balance and Balance sheet reports to confirm the outcome is as you expected.

The Balance of the Dividend Liability account should now be zero.   

4. Manually journal the value from the Dividend nominal account to your Retained Earnings/Profit nominal code.

If you review your Balance Sheet report, the balance remains on the Dividend nominal code (e.g. 3201).  You may wish to transfer the balance from the Dividend nominal account to your Retained Earning/Profit nominal account on your Balance Sheet. You should post this transaction on the date of the start if the new fiscal year to ensure the Dividends balance balance only relates to the new fiscal year.  

N/C	Name	Details	VAT	Debit	Credit
3200	Retained Earnings/Profit	Dividend 2016 YE	No Vat	10000.00
3201	Dividends	Dividend 2016 YE	No VAT		10000.00

 

You have now successfully completed the process of manually transferring the balance of the Dividend nominal code to the Retained Earning/Profit nominal code. Please review your Balance Sheet report to confirm your outcome is as expected.