Cumulative Dividend
Accounting glossary · Understand, connect, apply
A cumulative dividend preference requires unpaid preferred dividends to be satisfied before dividends can be paid to common shareholders, under the share terms.
Example
Preferred shares have a 2,000 annual cumulative preference. If last year’s amount was unpaid, 4,000 may be due priority before common dividends this year.
Remember the difference
Dividends in arrears are not automatically a recognized liability before declaration for equity-classified shares. Read the instrument’s terms.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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