Dividends are declared and paid to the company's stockholders. What effect does this transaction have on the company's accounting equation?

Question

Quizplus · Accepted Answer

When dividends are declared and paid, the retained earnings account decreases, which is part of the stockholders' equity section of the accounting equation. Since assets are equal to liabilities plus stockholders' equity, a decrease in retained earnings (part of stockholders' equity) will cause a decrease in the company's assets. Therefore, choice B is the correct answer.

Dividends Are Declared and Paid to the Company's Stockholders