When cash dividends are declared,________ decreases.When cash dividends are paid,________ decreases.
A)retained earnings; net profit
B)net profit; retained earnings
C)cash; retained earnings
D)retained earnings; cash

Question

Quizplus · Accepted Answer

When cash dividends are declared, the amount to be paid is debited to "dividends payable" and credited to "retained earnings", thereby decreasing retained earnings. Similarly, when cash dividends are paid, cash is reduced by the amount of dividends paid and dividends payable is also reduced to zero, which leads to a decrease in cash. Therefore, option D is the correct answer.

When Cash Dividends Are Declared,________ Decreases