A company's Board of Directors reviews the dividend policy set by a Company and if approved a dividend is paid quarterly. SInce dividends are ot guaranteed not paying dicvidends is not mandatory. As such, since he dividends are not mandatory, if a company does not pay them, it would not be in default or be in bankruptcy. This is quite different than debt. Since dividends are paid out of net income and from retained earnings, remember if dividends are paid the formula is: Beginning Rerained Earnings Plus + Net Income Less - Dividends Ending Retained Earnings Dividends are not an expense, and therefore not an expense in the income statement. It is a return of capital to the shareholder by deliver a cash dividend o each shareholder for the stated amount of the delared dividend. SInce dividends come out from Retained Earnings, the balance sheet would be out of balance by the amount of the dividends declared, To make the balance sheet balance, the amount of the reduction in RE, which is in the equity section of the balance sheet is offset in the eliability section of the balancesheet with a Dividends payable account. If a company declares a $100 dividend the balance sheet would change as such: Dividend Payable +100 RE -100 Ok, enough with the eductional background material.... If Ennis, Inc. has 35,000 common shares issued at a $2.25 par value of which 22,000 shares are outstanding. If these are the only shares outstanding, and no other stock is outstanding