How do dividends affect the balance sheet?

When the dividends are paid, the effect on the balance sheet is a decrease in the company's retained earnings and its cash balance. In other words, retained earnings and cash are reduced by the total value of the dividend.

What happens when dividends are paid out in cash?

First, they reduce the amount of retained earnings, which is reported under the equity section of the balance sheet. This reduction in retained earnings reflects the distribution of profits to shareholders. Second, when dividends are paid out in cash, the company’s cash balance is decreased on the asset side of the balance sheet.

Do dividends change the asset side of the balance sheet?

Stock dividends do not change the asset side of the balance sheet —only reallocates retained earnings to common stock. Cash dividends can be made via electronic transfer or check. When a cash dividend is paid, the stock price generally drops by the amount of the dividend.