Declaring and paying cash dividends affects which account/ accounts?
A)Cash only
B)Capital stock only
C)Cash and retained earnings
D)Cash and capital stock

Question

Quizplus · Accepted Answer

When a company declares and pays cash dividends, the cash account is reduced as cash is paid out to shareholders. In addition, the retained earnings account is also reduced, as this account represents the accumulated net income that has not been distributed to shareholders as dividends. Therefore, the correct choice is C, Cash and Retained Earnings. Option D (Cash and Capital Stock) is incorrect because paying cash dividends does not affect the capital stock account. Option A (Cash only) and B (Capital stock only) are too narrow as they do not include the reduction of retained earnings.

Declaring and Paying Cash Dividends Affects Which Account/ Accounts