This is a YouTube video titled "Dividends, Shareholder Loan and Journal Entries in QBO" created in September 2025. The content features a detailed tutorial by Ronica Cannon, a CPA and CFA, explaining how small business owners in Canada can pay themselves via dividends or salary, with a focus on recording dividends and shareholder loans in QuickBooks Online. The video covers accounting practices, tax implications, and practical steps for managing shareholder loans and dividend declarations.
If you're the owner of a small business corporation in Canada, you have probably wondered about how to pay yourself and the answer that you've probably received is via a salary or a dividend. And there are some essential differences between the two, for which I have lots of resources that I will link to in the description section of this video comment. And I also have a book called Small Business in youn Dividends if you would like to dive deeper and learn how to do your own T5 dividend declarations. My name is Ronica Cannon. I'm a CPA, a CFA, and the founder of Montreal Financial, where you can find lots of resources for your small business okay, so in this tutorial I'm specifically going to talk about dividends briefly and then show you how to record them them in QuickBooks Online. And note that the methodology that I'm using here applies to pretty much any accounting software. So it is important to note that dividends, unlike salaries, are not a tax deductible expense and consequently they do not appear on your profit and loss statement. Rather, the only place that you will see dividends is in the equity section on your balance sheet and they essentially reduce your equity because you are withdrawing money from the corporation. Now in practice, the way that you would want to record withdrawals from the corporation is to a set up a shareholder loan account and track all of the ins and outs, that is all of the money that you borrow from the corporation and all of the money that you lend to the corporation in this one shareholder loan account. In step two, at the year end of your corporation or whenever you decide to declare dividends, you would take a look at what's in the shareholder loan account, make a decision. It could be the same amount, it could be more, it could be less depending on your circumstances. And you would want to transfer that to a dividends account which will be in the equity section of the balance sheet. And one note that I want to make which is unrelated to accounting is that Revenue Canada is very strict about withdrawing money from a corporation. The reason is is because corporate owners could just withdraw money indefinitely and never pay tax on it. So to ensure that this does not happen, Revenue Canada requires that you repay any money withdrawn within one fiscal year of it being withdrawn or declare it as dividends. Well, you can also declare a salary and then repay the corporation, but dividends is the most common way of clearing out the money that you have withdrawn from the corporation. Okay, so let's go over how to do the accounting for this. The first thing you are going to do is you're going to go to the chart of accounts. You are going to create a new account. You're going to call it shareholder loan. And since you are only borrowing money from the corporation, it is a receipt receivable by the corporation. That is you owe the money to the corporation. So you are going to show it as a current asset. Often shareholder loans are shown as a current liability and if you want to do it that way, that is fine as well. But in this case it's probably more appropriate, assuming that you were borrowing from the corporation, to show as a current asset asset. The detail type will be loans to officers. This doesn't matter that much. Your default tax code is going to be out of scope because essentially gsth it's not relevant to the shareholder loan account. So now I already have a shareholder loan account, so I'm not going to save it. But you should go ahead and save it. Close this. And then we are going to also create a new account called dividend. And so the account type for this is going to be part of equity. And here you are going to show it as part of owner's equity. Again, the detail type doesn't matter that much. And once again the default tax code is out of scump. So we can save this. This. I already have a dividends paid account, so it's not letting me save it. So now every time you withdraw funds from the corporation, you simply allocate it to the shareholder loan. It makes this very, very easy. It doesn't really matter as long as the transaction relates to a withdrawal by you. Or potentially you might have a personal transaction on your business credit card or through your business bank account. All of those would just be allocated to the shareholder loan account. So let's go to the bank transactions. Assuming you have linked your bank account and I have recently withdrawn some money from the corporation and it is right here. I just did a search for $500 and so now I'm going to open up this transaction. The type of transaction is expense. We have the transaction date here. This is a Sherlock Holmes detective agency. He's a shareholder, so he took money out. You should put the name again. It helps you to analyze your data much more effectively. The category is going to be the shareholder loan account. So I am going to make sure that this is my asset account. And then the tax code is going to be out of scope. You can set it. Everything relating to the shareholder loan is always going to be out of scope. And then I am simply going to add this transaction now let's go to reports and see what it looks like. So let's go to the balance sheet and on the balance sheet you will see that I have my shareholder loan transaction for $500. Now let's say my year end is August 31st and my shareholder loan balance is $500. And as mentioned, this is probably going to be a number of different transactions which can be borrowings from the corporations. You might have home office expenses that you pay for personally that get offset so they reduce the amount of the shareholder loan. Or you might have other business expenses that you pay for personally but should have been paid by the business. This would again would also reduce your shareholder loan. So there are a number of different types of transactions that can go here. Okay, so now what we're going to do is we are going to declare finance $500 of dividends for the year ended August 31, 2025. So now I'm simply going to transfer this amount to the dividends paid account. So let's click on new. Let's click on journal entry. The date of my journal entry is August 31st and the account is shareholder loan which is currently in a debit position. It's an asset. So I am going to credit this and I'm going to click on dividends paid and debit dividends paid because this is going to be a reduction of equity. And here I can say to refer reflect dividends paid for 2025 or something like that. It can be anything you want really that accurately reflects the substance of the transaction. Okay, so let's save and close this and you'll see now the shareholder loan no longer has a balance in the account. And if I scroll down I have dividends paid. This is an accumulation of previous years. But here I have the $500 here of the dividends. And now the next step for me would be to prepare the T5 declarations or your accountant will help you prepare the T5 declarations and submit them to CRA. And then that $500 would be shown as income on your personal tax return under the dividends section. So that's pretty much it. If you have any questions, don't hesitate to leave a comment and I will try my best to answer it. And once again, if you want to dive deeper into the whole topic, check out my book Small Businesses and you'd Dividends, which is designed to help you make the best decision in terms of how to pay yourself. I hope this was helpful. Please like and subscribe and have a great day.
