Dictionary of Accounting Terms: liability dividend
liability dividend
dividend in the form of notes payable when the company is short of cash but has adequate retained earnings; also called scrip dividend. The cash payment for the dividend will take place in the future. The recipient of the liability dividend may hold it until the due date to collect funds or may be able to discount it before the maturity date to obtain immediate cash. The entry at the declaration date is to debit retained earnings and credit the liability scrip dividend payable. When paid, scrip dividend payable is debited and cash credited. In the case where the liability involves interest, the interest part of the cash payment is charged to interest expense with the principal portion being debited to scrip dividend payable.
