Which accounting principle stipulates that dividends should only be paid out of profit,not by issuing new share capital?
A) Revenue recognition
B) Matching
C) Capital maintenance
D) Prudence

Question

Quizplus · Accepted Answer

The principle of capital maintenance states that a company should only distribute dividends out of profits, and not by issuing new share capital. This principle ensures that the company's original investment remains intact and that shareholders are not misled into believing they are receiving a return on their investment when the company is actually using new funds to pay them. The other principles listed (revenue recognition, matching, and prudence) do not directly relate to the payment of dividends.

Which Accounting Principle Stipulates That Dividends Should Only Be Paid