Final answer:
The net effect on the accounting equation, when dividends are declared and paid in the same period, is that both assets (cash) and shareholders' equity (retained earnings) decrease by the amount of the dividend payment, with no impact on liabilities.
Step-by-step explanation:
When dividends are declared and paid in the same accounting period, the accounting equation is impacted in the following way: Assets decrease due to the cash payment to shareholders, and equity decreases because retained earnings are reduced. Specifically, the effect of the dividend payment on the accounting equation is that both assets (Cash) and shareholders' equity (Retained Earnings) decrease by the same amount.
For example, if a company declares and pays $1,000 in dividends, the accounting equation (Assets = Liabilities + Equity) reflects this transaction as a decrease in Cash (asset) and a simultaneous decrease in Retained Earnings (equity) by $1,000. This means that while total assets and total equity decline, liabilities remain unaffected, maintaining the balance of the accounting equation.