Hi everybody,
just a quick question: equity method investments are recorded as separate items on the assets side of the balance sheet. Income from equity investments also has a line item on the income statement.
Assume you receive a dividend of X $ from your equity investment, how would you account for that?
As i understood it, your net income would ultimately increase by X $, and the value of your balance sheet line item would also increase by X $ - everything would be fine, the balance sheet would balance.
But shouldn't there also be an impact on your cash balance since you receive cash? In that case, the balance sheet wouldn't balance anymore.
Thanks for clarifying.
Thanks, highly appreciated.
Would the balance sheet balance in this case? You'd have an increase in income (+3$) and a decrease in your balance sheet item (-3$). But wouldn't cash & cash equiv. would go up by 3$ since you receive a payment?
This then looks to me as if the assets side would stay unchanged (cash +3$, assets at equity -3$), and the liabilities side (e.g. retained earnings) would increase by 3$.
If you wouldn't record the cash increase, the balance sheet would look even further off with assets decreasing by 3$ and dividend income increasing by 3$.
Thanks, got it!
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