Case Interview Prep

Category - Accounting

Which of the following entries would be made to close a dividends account?
  1. Credit retained earnings
  2. Debit retained earnings
  3. Debit revenue
  4. Debit depreciation expense
  5. Debit cash
Explanation
Answer - B - To close a dividends account, a debit entry would be made to retained earnings.

Key Takeaway: Paying dividends will reduce retained earnings. Because retained earnings carries a credit balance, the debit entry will reduce the account.
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