What is the journal entry for dividend collected by bank?

The journal entry for the dividend collected by the bank is as follows:

Here, Bank Account is debited and the Dividend Received Account is credited. This treatment is explained below.

The logic behind the journal entry

This can be explained through the following rules of accounting:

• Golden rules of accounting
• Modern rules of accounting

Golden rules of accounting

A bank account is a real account and the golden rule of accounting for the real account is, “Debit what comes in and credit what goes out”

Hence, the bank account is debited as the money is coming into the bank.

Dividend is an income hence dividend received is a nominal account. The golden rule of accounting for a nominal account is “Debit all expenses and losses and credit all income and gains”

Hence, the dividend received account is credited as income.

Modern rules of accounting

As per modern rules of accounting, a bank account is an asset account.

The asset account is debited when increased and credited when decreased.

Hence, the Bank account is debited here as it is increased.

A dividend received account is an income account.

The income account is credited when increase and debited when decreased.

Hence, the dividend received account is credited here as it is increased.

Treatment in the financial statements

Since the dividend received is an income; it is shown on the credit side of the Statement of profit and loss.

The bank account is an asset so it will be shown on the balance sheet.