The reason that both expenses and dividends are recorded by debit entries is that:

Question

Quizplus · Accepted Answer

Both expenses and dividends are reduction of equity, and therefore are recorded with debit entries, which decrease the balance in the equity account. Dividends are specifically a distribution of the company's earnings to its shareholders, which decreases the retained earnings within equity. Expenses are costs incurred in generating revenue, which reduces the net income and retained earnings in equity. Credit entries are used to record additions to equity, such as revenues and investments. Therefore, only choice C accurately describes why both expenses and dividends are recorded with debit entries, and not credits.

The Reason That Both Expenses and Dividends Are Recorded by Debit