Cash dividends are not a liability of the corporation until they are declared by the board of directors.

Question

Quizplus · Accepted Answer

Cash dividends are not recorded as a liability on the corporation's balance sheet until they are declared by the board of directors. Prior to that, they are considered a potential liability and are recorded as a footnote disclosure in the financial statements. Cash dividends are not considered a liability until the board of directors declares them. Up until that point, the corporation has no legal obligation to pay out dividends to its shareholders. Once the dividends are declared, they become a liability that the corporation must fulfill.

Cash Dividends Are Not a Liability of the Corporation Until