If dividends are declared and paid in the same accounting period,what is the net effect on the accounting equation?
A)a decrease in Retained Earnings and an increase in Expenses
B)a decrease in Cash and an increase Expenses
C)a decrease in Cash and an increase in Retained Earnings
D)a decrease in Cash and a decrease in Retained Earnings

Question

Quizplus · Accepted Answer

Dividends result in a decrease in Cash (an asset) because cash is paid out to shareholders, and a decrease in Retained Earnings (an equity account) because dividends are a distribution of earnings to shareholders, not an expense. Thus, they reduce the amount of earnings retained in the business.

If Dividends Are Declared and Paid in the Same Accounting