Dividend Revenue Journal Entry
In accounting, when the company receives the dividend from its stock investment in the other’s company, it needs to record it as the dividend revenue in the journal entry if it has less than 20% of ownership in the other company. This is due to the company will need to use the cost method of accounting for the stock investment that holds less than 20% ownership.
Likewise, under the cost method of accounting, the company recognizes the stock investment at cost and the dividend received as revenue similar to the debt investment accounting. However, unlike the interest from the debt investment, the company does not accrue dividend revenue. That is why the journal entry is only made when the company receives the dividend.
Dividend revenue journal entry
The company can make the dividend revenue journal entry by debiting the cash account and crediting the dividend revenue account.
Dividend revenue is usually recorded in the income statement under the section of other revenues. This is due to dividend revenue is usually not the income from the main business operation of the company.
Dividend revenue example
For example, the company ABC has 10,000 shares of the stock investment which represents 10% ownership in the corporation XYZ. On December 31, 2020, the company ABC received a cash dividend of $5,000 from this stock investment.
In this case, the company ABC can make the journal entry for the dividend revenue as below:
It is useful to note that if the stock investment represents the ownership of 20% or more in the investee company, another accounting method, e.g. equity method or consolidation method of accounting, will be used instead. For example, under the equity method, the company records the dividend received as the deduction of the investment, instead of recording it as the dividend revenue.