Question

The company paid $35,000 cash in dividends to the owner, Jen Rogers. The entry needed to close the dividends account is:

a. Debit Income Summary and credit Cash for$35,000.
b. Debit Dividends and credit Cash for $35,000.
c. Debit Income Summary and credit Dividends for$35,000.
d. Debit Retained Earnings and credit Dividends for $35,000.
e. Debit Dividends and credit Retained Earnings for$35,000.

Answer 1

The entry needed to close the dividends account is: Debit Dividends and credit Retained Earnings for $35,000.

Step-by-step explanation:

The entry needed to close the dividends account is option e: Debit Dividends and credit Retained Earnings for $35,000.When a company pays dividends to its owners, it reduces the retained earnings of the company. Retained earnings represent the accumulated profits of the company that have not been distributed as dividends. Therefore, to close the dividends account, we need to debit the Dividends account to reduce it and credit the Retained Earnings account to decrease the accumulated profits. This closes the temporary Dividends account by transferring its balance to Retained Earnings, which is a permanent equity account. The right answer is therefore option d: Debit Retained Earnings and credit Dividends for $35,000.