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Date of Record

Now if you remember, when a company decides to pay its shareholders dividends, it has to go through a few steps first. First, the board of directors has to declare a dividend or formally decide to issue a dividend. Second, the shareholders need to counted and recorded. Third, the dividend is actually paid and the checks are written. The date of record is the second step in the dividend payment process.

After the board of directors declares a dividend, the company has to make a record of all of its shareholders. You might think this sounds kind of stupid. Why wouldn't the board of directors know the owners of the company? Well, that might be the case in a small company, but public companies can have millions of shareholders (i.e. owners). The date of record is a date in the future that the board of directors identifies the day it declares dividends. All the shareholders on the date of record will receive a dividend. The date of record is usually about two-three weeks after the date of declaration.

Think about it this way. Blue Guitar, Inc. board of directors declares a dividend in writing on December 1st identifying December 15th as the date of record. That means that all stockholders on December 15th will receive a dividend. It doesn't matter who owned the stock on December 1st because the 15th is the date that the company will record all of its shareholders.

So if you hear that a company declared dividends, you can go buy the stock before the date of record. As long as you own the stock on the date of record, you will receive a dividend.

Don't get tricked on an accounting exam if they ask you what the journal entry on the date of record is. No journal entry is required on the date of record, because no transaction actually happened. The company just makes a list or record of its shareholders.

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