Asked Jan 24, 2020

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?


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


  • 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.
Accounting homework question answer, step 2, image 1
Step 3
Accounting homework question answer, step 3, image 1

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