Does a dividend reduce profit?

When a corporation declares and pays a dividend, the dividend does not reduce the current accounting period’s profit reported on the income statement. In other words, a dividend is not an expense.

Dividends will reduce the amount of the corporation’s retained earnings. Retained earnings are reported in the stockholders’ equity section of the balance sheet.

If a corporation has very profitable uses for its cash, its future profits might be less if it pays dividends instead of reinvesting the cash dividend amounts into profitable projects.

Learn more about Stockholders’ Equity.

    Instantly download all of the materials above for only $30