Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 17 - No. 14)

What is the effect on the accounting equation when a company declares and pays dividends to its shareholders?

Assets increase, Equity increases

Assets increase, Liabilities increase

Assets decrease, Equity decreases

Assets decrease, Liabilities decrease

Explanation

Paying dividends decreases cash (an asset) and decreases retained earnings (equity) because dividends reduce the amount of retained earnings available to the business.

Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 17 - No. 14)

Explanation

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