A company declared and paid dividends of $500.In transaction analysis,how does this transaction affect the accounting equation?
A)Add $500 to Revenue account and add $500 to Cash account.
B)Add $500 to Dividends account and add $500 to Accounts Receivable account.
C)Subtract $500 from Retained Earnings account and subtract $500 from Cash account.
D)Add $500 to Dividend Expense account and subtract $500 from Cash account.

Question

Quizplus · Accepted Answer

Declaring and paying dividends reduces the retained earnings account (a part of equity) and reduces the cash account (an asset). Therefore, we subtract $500 from retained earnings account (a part of equity) and subtract $500 from cash account (an asset). Option C correctly represents this transaction's effect on the accounting equation.

A Company Declared and Paid Dividends of $500