Dividends paid: Group of answer choices increase assets. increase expenses. decrease revenues. decrease retained earnings.
Question
Dividends paid:
- Group of answer choices
- increase assets.
- increase expenses.
- decrease revenues.
- decrease retained earnings.
Solution
Dividends paid:
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Do not increase assets. Dividends are a distribution of a company's earnings to its shareholders. When dividends are paid, cash (an asset) decreases.
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Do not increase expenses. Dividends are not considered an expense. They are a distribution of profits to shareholders and do not affect the company's income statement.
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Do not decrease revenues. Dividends are paid out of retained earnings (profits that have been kept in the company), not out of revenues.
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Decrease retained earnings. This is the correct answer. When dividends are paid, they are deducted from retained earnings. This is because dividends are a distribution of a company's profits (which are part of retained earnings) to its shareholders.
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