Dividends require two accounting entries, one when the dividend is declared and another when it is paid. What is the correct entry to record the declaration of a cash dividend of 20c a share calculated on 100 000 shares?
A) Debit dividend payable $20 000; credit cash at bank $20 000
B) Debit retained profits $20 000; credit dividend payable $20 000
C) Debit bank $20 000; credit share capital $20 000
D) Debit dividend payable $20 000; credit retained profits $20 000

Question

Quizplus · Accepted Answer

When a dividend is declared, the company decreases its retained earnings (since dividends are paid out of profits that have not been reinvested in the business) and increases its dividends payable liability, reflecting the obligation to pay the shareholders.

Dividends Require Two Accounting Entries, One When the Dividend Is