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