Journal Entry To Close Out Distributions (Dividends) To Retained Earnings - Closing Entry For Dividends / Drawings

 

Journal Entry To Close Dividends Account / Drawings Account

Distributions to shareholders or stockholders (called Dividends) are actually the shares of profits distributed among shareholders or stockholders for the year.

To close distributions to shareholder account (dividend account), we record following journal entry:

                                     Retained Earnings Account a/c  XXX

 

                                                                               Distributions To Shareholders a/c / Dividend a/c XXX

 

                 (Distributions To Shareholders Or Dividend Account Closed To Retained Earnings Account)

The effect of the journal entry is that it decreases equity account (retained earnings account) as dividend has a debit balance while equity account has a credit balance so it reduces the balance of equity account due to which the equity account is debited or decreased.

In case of sole proprietorship or partnership, Drawings Account is credited in order to close it or to transfer it to capital account which is debited in the closing entry.