Dividends payable is the amount owed to shareholders after a dividend has been declared. This account is funded after the company analyzes its quarter and looks at how much profit there is. Then, that profit can be put into a special account, which is then distributed to shareholders of record on a certain date.
The dividends payable is often referred to as a liability, and while it is an obligation, many may not consider it a liability. In the truest since, liabilities are debts owed by the company to another party or parties. In this case, even though the payments are to the company's owners, they are considered liabilities because the corporation has its own, separate identity. In essence, what is truly taking place is that the company's shareholders are paying themselves money, based on a decision of the executive team and board of directors.
Many investors look at the dividends payable to keep track of a company's finances. They are found in the liability section of the ledger sheet. These are more than liabilities. Even though they represent expenses, they are a special kind of expense that can actually point to how profitable the company has been in the past and what kinds of returns investors may be able to expect in the future.
Many things can affect the dividends payable balance. As a company's profit fluctuates each quarter, so will its dividends payable account. Naturally, lower profit will lead to lower dividends, unless expenses are substantially cut or assets are sold. Further, a company may acquire a competitor or other type of company, thus reducing the dividends payable that may otherwise be paid in a quarter. Therefore, investors must look at other factors when considering whether a company is in good financial standing.
Generally, companies give a full accounting for their finances at the quarterly meetings. The most comprehensive analysis happens at the annual meetings. This is when company's will review all four quarters, track changes through the season and do a historical comparison. This is also when the final dividends payable numbers of the year will be released.
For the purposes of bookkeeping, publicly-traded corporations often declare dividends payable in the form of US Dollars. This may be true both for companies based in the United States and those based in other parts of the world. Using the US Dollar standardizes the currency by which these dividends compared to other companies.
