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The Cash Dividends account is best described as which type of account?
AA revenue account
BA permanent liability account
CA current asset account
DA contra equity account
Answer & Solution
Correct answer: D. A contra equity account
1. Cash Dividends records payouts of profit to shareholders.
2. It is a temporary account that substitutes for a debit to Retained Earnings.
3. Because its normal balance is the opposite of equity's, it is classified as a contra equity account.
4. It is not revenue (A), an asset (C), or a liability (D).
5. Therefore Cash Dividends is a contra equity account.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.5.3 "Stockholders' Equity", p.37_
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