Question
Asked Jan 24, 2020
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What is the effect on the accounting equation when cash dividends are declared? What is the effect on the accounting equation when cash dividends are paid?

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Expert Answer

Step 1

Cash dividends: The amount of cash provided by a corporation out of its distributable profits to its shareholders as a return for the amount invested by them is referred as cash dividends.

 

Step 2

Explanation:

  • Cash dividend is a component of stockholder’s equity that decreases equal to the amount declared to be paid as cash dividends. Therefore, it is debited.
  • Dividends Payable is a liability that increases equal to the amount of dividends due to be paid to the stockholders. Therefore, it is credited.
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Step 3
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