Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

Why are dividends recorded with debits in the accounting system?

Because dividends increase liabilities, and increases in liabilities are recorded as debits.

Because dividends represent revenue, and revenues are always debited.

Because dividends increase cash, and increases in assets are recorded as debits.

Because dividends decrease retained earnings, which is an equity account, and decreases in equity are recorded as debits.

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Verified step by step guidance

Understand the nature of dividends: Dividends are distributions of a company's earnings to its shareholders and are not considered expenses or revenues. They reduce retained earnings, which is part of equity.

Recall the accounting equation: Assets = Liabilities + Equity. Equity includes retained earnings, which decrease when dividends are declared and paid.

Learn the rules of debits and credits: In accounting, decreases in equity accounts (such as retained earnings) are recorded as debits, while increases in equity accounts are recorded as credits.

Apply the concept to dividends: When dividends are declared, they reduce retained earnings, which is an equity account. Therefore, the reduction is recorded as a debit to the dividends account and a credit to cash or dividends payable, depending on whether the dividend is paid immediately or declared as a liability.

Review the correct answer: Dividends decrease retained earnings, which is an equity account, and decreases in equity are recorded as debits. This aligns with the rules of debits and credits in the accounting system.