JournaldrillDividends declared and paid
A journal entry exercise from Journaldrill. Solve it with an account picker and debit and credit fields in your browser, and it is checked the moment you submit.
The task
The board of Granite Peak Outfitters, Inc. declares a cash dividend of $4,500 to its stockholders and pays it the same day. The company records dividends in a Dividends account.
What this exercise teaches
Dividends are a distribution of earnings, not an expense, so they are debited to Dividends, which is later closed to Retained Earnings. Because the dividend is paid the same day it is declared, Cash is credited directly with no payable in between. Owner's Drawings is used by sole proprietorships and partnerships, not corporations.
A hint if you get stuck
A corporation's distribution to its owners uses a temporary equity account, and the asset paid out decreases.
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