What is the journal entry to declare and pay a cash dividend?

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Prepare for the WGU ACCT2350 Intro to Business Accounting Exam. Practice with multiple choice questions and detailed solutions to sharpen your accounting skills. Master your exam with confidence!

Multiple Choice

What is the journal entry to declare and pay a cash dividend?

Explanation:
Dividends reduce owners’ equity and create a liability when they are declared, then the liability is settled with cash when the dividend is paid. So, for the declaration, you debit Retained Earnings and credit Dividends Payable. For the payment, you debit Dividends Payable and credit Cash. This sequence lowers Retained Earnings, records the obligation to pay, and then removes that obligation as cash goes out. The other options mix up which accounts are affected in the declaration or the payment, or apply cash outflow too early.

Dividends reduce owners’ equity and create a liability when they are declared, then the liability is settled with cash when the dividend is paid. So, for the declaration, you debit Retained Earnings and credit Dividends Payable. For the payment, you debit Dividends Payable and credit Cash. This sequence lowers Retained Earnings, records the obligation to pay, and then removes that obligation as cash goes out. The other options mix up which accounts are affected in the declaration or the payment, or apply cash outflow too early.

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