Forum Message

Dividends/Corporation Tax

Hi

I have been paying dividends and have used the method of taking amount from cheque account and moving to retained earnings account. However, the retained account is showing a minus figure?

Is this correct? And should this transaction have an effect on the Corporation Tax account?

Many thanks

Tom Coates
TMC Transportation.


Posted by Tom Coates on Jun 24, 2010 9:02 AM BST

Hi Tom,

Yes, it is possible to have a negative Retained Earnings balance as long as the total Equity balance is positive. However, there are a couple of things to be careful of:

  1. Check that you have entered all transactions for the financial period related to the dividend. This includes the corporation tax expense - to record this expense, create a General Transaction from the Corporation Tax Liability account to the Tax Expense account.

  2. If the dividend is paid from profit made in the previous financial year, you should perform the year-end procedure to transfer the profit to the Retained Earnings account. To do this, finish entering all transactions for the year then click menu Setup > Financial Year > Start a new financial year.

The dividend payment does not affect the profit and so will not affect the corporation tax due.

Finally, please note that I am not an expert on dividend payments - you should check this advice with your accountant.

Cheers,


Posted by Mark McLaren (Solar Accounts) on Jun 24, 2010 10:37 AM BST