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What is the difference between interest paid and dividend paid?

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Question ajoutée par Nadjib RABAHI , Freelancer , My own account
Date de publication: 2016/04/10
Jaishri Navani
par Jaishri Navani , Finance Manager , West Zone Fresh Supermarket LLC

Interest is the amount paid for the use of the borrowed money, however Dividend is the amount which a company pays to its shareholders as a part of profit.

Interest is the charge levied to the borrower, for the use of money, which belongs to somebody else.

Dividend is the return paid by the company to its shareholders for the capital invested by them.

Interest is Charge against profit. It should be paid even after profit is not earned by the company. The rate of interest is fixed and is compulsory to pay to its Creditors or lenders or debenture holders

Dividend is Appropriation of profit. It is necessary to have profit for the distribution of dividend. The rate of dividend remains constant in the case of preference shares, but fluctuates in case of equity shares.

 

In case of Interest tax shield is available because it is a tax deductible expense.Dividend is not a tax deductible expense

Danish jahanzeb Durrani
par Danish jahanzeb Durrani , Assistant Manager Accounts , Black hawk builders

Dividends are a distribution of a corporation's earnings to its stockholders. Dividends are not an expense of the corporation and, therefore, dividends do not reduce the corporation's net income or its taxable income.

However, Interest on bonds and other debt is an expense of the corporation. The interest expense will reduce the corporation's net income and its taxable income.

Mahmoud Elbakhshwan
par Mahmoud Elbakhshwan , Senior accountant - CMA , Hassan Allam group

Totally agree with Istiyak Ahmed  detailed answer but i want to say a conclusion that interest expense made tax savings 

 

SULTAN-E- ROOM
par SULTAN-E- ROOM , Head Accountant , DALLA DRIVING ACADEMY

interest paid basically is a return on loans, on the other side dividend paid is return on the equity

Istiyak Ahmed
par Istiyak Ahmed , Hr Coordinator , Salini Impregile S.P.A

Dividends are a distribution of a corporation's earnings to its stockholders. Dividends are not an expenses of the corporation and, therefore, dividends do not reduce the corporation's net income or its taxable income. When a dividend of $10 is declared and paid, the corporation's cash is reduced by $10 and its retain earning (part of stockholders equity) is reduced by $100. Interest paid is an expense of the corporation. The interest expense will reduce the corporation's net income and its taxable income. When interest expense occurs and is paid, the corporation's cash is reduced by the interest payment, but some cash will be saved by the reduction in income taxes. The corporation's retained earnings will also be reduced by less than the amount of interest expense. For example, if a corporation has an incremental tax rate of 40%, interest expense of $10. will result in $4. less in income tax expense and income tax payments. This means that an interest payment of $10 will reduce the corporation's cash and retained earnings by the net amount of $6. ($10. of interest minus $4. of tax savings).