In a study session, a classmate makes this statement "Dividends are listed as expenses on the income statement." What is your best response to this statement?
A) I've been struggling with that concept and I feel that dividends should be shown on the balance sheet as assets.
B) You are right. Revenues and expenses are shown on the income statement. Dividends are a cost of generating revenues and that makes them an expense. Why else would a corporation pay dividends?
C) Dividends represent a portion of corporate profits that are paid to the shareholders. They belong on the retained earnings statement.
D) Dividends are deducted from retained earnings on the balance sheet.

Question

Quizplus · Accepted Answer

Dividends are not expenses; they are distributions of profits to shareholders and are shown on the retained earnings statement, not the income statement.

In a Study Session, a Classmate Makes This Statement "Dividends