Question

The payment of a dividend will reduce the following two accounts

Multiple Choice

• Equity and retained earnings

• Retained earnings and dividends payable

• Cash and dividends payable

• Common shares and cash

Answer 1

Option No C is correct

As Payment of Dividend will reduce the balance of Cash and Dividend Payable.

As Retained Earning are the part of profit and when the Dividend are declared the adjustment entry passed for that which reduces the Retained Earning and increase the Dividend Payable but at the time of payment of Dividend it is common that Cash Balance will decrease and Dividend Payable is Liability and when the liability is paid it decreases so when the Dividend is paid the balance of Dividend Payable reduces.