Dividend equalization account

Updated: Aug 20, 2021

A document used for obtaining goods from a warehouse officer which are required for exportation, etc. It is issued on the authority of the Customs House when the annual profit made by a company tends to vary considerably over a number of years. and particularly where this variation is consistent with the nature of the business, the directors may wish to take steps to stabilize dividend payments, if only to avoid the impression of business instability. This can be done by opening what is referred to as a dividend equalization account (or reserve). An average profit over a period of years is determined and an average dividend is agreed, based on that figure. This amount is paid out each year in dividends to shareholders and charged to the account. The account is credited with annual and unequal appropriations from the profit and loss account.

Reference: The Penguin Business Dictionary, 3rd edt.

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