When the board of directors establishes a longer than normal time period between the date of record and the date of payment, the dividend is identified as a liability dividend. The arrangement may call for the accrual of interest on the liability and the distribution of notes to the stockholders (known as scrip). The only difference in accounting between cash and liability dividends is the accrual of interest. While there is support for treating the interest as expense and reporting it on the income statement, there also is good rationale for considering these amounts to be additional dividends. Liability dividends are seldom encountered in practice.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.