On the date of declaration:

Question

Quizplus · Accepted Answer

When a dividend is declared, the company's obligation to pay exists but the payment has not yet been made. Therefore, the company will debit Retained Earnings (to reduce equity) and credit Dividends Payable (liability) to recognize and record the obligation to pay dividends. Option A is incorrect because it increases dividends by debiting the account. Option B is incorrect because it records the payment of the dividend, not the declaration. Option C is incorrect because it describes a scenario when the company pays dividends, not when the declaration is made.

On the Date of Declaration