RRD Limited pays a dividend totaling £6000 to its shareholders on 31 December 20X4.What is the effect of this payment on the company's equity, assets and liabilities?

Question

Quizplus · Accepted Answer

Paying dividends results in a decrease in equity because dividends are a distribution of profits to shareholders, reducing retained earnings. It also leads to a decrease in assets because cash, an asset, is used to pay the dividends. There is no change to liabilities because paying dividends does not create nor settle any obligations.

RRD Limited Pays a Dividend Totaling £6000 to Its Shareholders