What is preferred stock ? Preferred stock is a type of equity which gives stockholders additional benefits (preferences). The main benefit is that the preference stockholders are entitled to dividends and repayment of their investment on liquidation before any payments are made to common stockholders.
When a business declares a dividend part of the retained earnings of the business are distributed to the owners. The impact on the accounting equation is to increase the dividends payable liability and decrease the owners equity is the business.
Dividends Declared Journal Entry November 6th, 2016Team
For a business which is operated through a company or corporation, the equity is referred to as shareholders’ equity and the capital introduced is referred to as capital stock or share capital, and represents ownership in the company or corporation. This ownership also give the shareholder a right to a share in the retained earnings of the business.