We will discuss stock dividends and stock splits, similar but different processes.
Stock dividends are similar to normal dividends in that the corporation is giving part of its earnings to the stockholders, to the owners. We will have a date of declaration where we record the dividend and a liability and will then issue the stock dividend in the future. The difference is that we will be giving stockholders stock instead of cash for the dividend. The journal entry for the stock dividend at the time of declaration is a debit to retained earnings or dividend and a credit to stock dividend payable, a liability. At the time of payment we will issue the stock dividend and reduce the liability account.
Stock splits are a bit different in that each stock holder will receive some increase in stock, usually in a ration format. for example if there was a 2 for 1 stock split and we had 4 stock before the stock split we would have 8 stocks after the stock split.
The stock split does not change the percentage ownership. The stock split also does not change the capital account balances. The stock dividend will decrease the par value and increase the number of shares.
For more accounting information see website.