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In this case, the company is paying investors back their original investments.
A traditional dividend is recorded by debiting retained earnings and crediting cash for the amount paid to the shareholders.
These Dividend payments are usually given out of the company's current or retained earnings, on a quarterly basis.
A shareholder of a corporation may receive a dividend if the corporation decides to pay the debt of its shareholders, through services from the corporation, or the shareholder is allowed the use of the corporation's property.
When a company has more liabilities than assets, equity is negative and no liquidating distribution is made at all.
This is usually the case in bankruptcy liquidations.
A company that declares a liquidating dividend doesnt have enough retained earnings to declare a regular dividend.