12/04/2023
Understand the business language!
Dividends are how a company rewards or pays out a portion of its profits to shareholders/ investors. It is important to note that not all companies pay dividends, even if they are profitable. They can choose to do several things with the profit made such as: Re-invest it into their business.
If a company pays stock dividends, the dividends reduce the company's retained earnings and increase the common stock account. Stock dividends do not result in asset changes to the balance sheet but rather affect only the equity side by reallocating part of the retained earnings to the common stock account.