Interim dividend: Payment of dividend is an application of funds. In the case of interim dividend the following entry is passed

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Interim dividend a/c           Dr

To bank a/c

 

Interim dividend is transferred to P&L a/c by the following entry

P&L a/c               Dr

To interim dividend a/c

 

The composite entry is

P&L a/c               Dr

To bank a/c

 

As the transaction affects the P&L a/c (a non current item). Payment of interim dividend results in application of funds.

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