A business pays cash for dividends. Which of the following accounts is credited?

Question

Quizplus · Accepted Answer

When a business pays cash for dividends, the Cash account is credited, as cash is going out of the business. The choice A, Common Stock, is incorrect because it is an equity account that is affected when a company issues stock, not when it pays dividends. Choice B, Dividends, is incorrect because it is the account that is being debited, not credited. Finally, choice D, Retained Earnings, is also incorrect because Retained Earnings is the account that is reduced by the dividend payment, not credited.

A Business Pays Cash for Dividends