alleryStart learning →How are cash dividends paid treated in a company's accounts?
AA deduction from sales
BAn income statement expense
CAn addition to share capital
DDeduction from retained earnings
Answer & Solution
Correct answer: D. Deduction from retained earnings
Dividends paid reduce retained earnings and are not shown as an expense on the income statement.
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Related questions
Which limits can restrict how much a firm may distribute as dividend?Why might management avoid changing dividend policy abruptly?Which alternative to cash dividends may a firm choose when surplus cash exists?Which type of shareholder usually prefers earnings to be retained?With no NPV-positive projects and surplus cash, what should management do?Management knowing more than the market is called what?If dividends bear higher tax than gains, raising them does what to value?Per the Modigliani-Miller theorem, dividend policy has what effect on firm value?