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Understanding Cash Dividends: Effects on Financial Accounts
dividends cash dividend retained earnings accounting principles credit debit
When a company declares and pays a cash dividend to its shareholders the: Dividends account will be decreased with a debit (DR). Retained Earnings account will be directly increased with a credit (CR). Dividends account will be increased with a credit (CR). Cash account will be decreased with a debit (DR). Dividends account will be increased with a debit (DR).

When a company declares and pays a cash dividend to its shareholders, the following transactions occur:

  1. The Dividends account will be increased with a credit (CR), reflecting the obligation to distribute cash to shareholders.
  2. The Retained Earnings account will be decreased with a debit (DR), as the retained earnings are being distributed to shareholders.
  3. The Cash account will be decreased with a debit (DR), representing the actual payment of cash to shareholders.

So, the correct answer is: Dividends account will be increased with a credit (CR). Retained Earnings account will be decreased with a debit (DR). Cash account will be decreased with a debit (DR).

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