Question

The board of directors of Waugh Company declared a cash dividend. The correct entry to be recorded will include

a) Debit to Cash and Credit to Dividends Payable
b) Debit to Dividends Payable and Credit to Cash
c) Debit to Retained Earnings and Credit to Dividends Payable
d) Debit to Dividends Payable and Credit to Retained Earnings

Answer 1

Answer:

The correct entry to be recorded when the board of directors of Waugh Company declares a cash dividend is  

Debit to Dividends Payable and Credit to Cash.

When a company declares a cash dividend, it signifies that they will be distributing cash to their shareholders. To record this transaction, the company needs to make the following accounting entry:

- Debit to Dividends Payable: This increases the Dividends Payable account, representing the obligation of the company to pay dividends to its shareholders. This is a liability account on the company's balance sheet.

- Credit to Cash: This decreases the Cash account, reflecting the outflow of cash from the company to the shareholders. This is an asset account on the company's balance sheet.

So option b) Debit to Dividends Payable and Credit to Cash is the correct entry to be recorded when the board of directors of Waugh Company declares a cash dividend.