Final answer:
The correct journal entry for the declaration date of a cash dividend includes debiting Retained Earnings or Dividends and crediting Cash Dividends Payable, which signifies the company's promise to pay dividends to shareholders.
Step-by-step explanation:
The declaration date journal entry for a cash dividend will include a debit to Retained Earnings or Dividends and a credit to Cash Dividends Payable. This reflects the company's commitment to paying a specified dividend amount to shareholders.
The dividend has been declared by the board of directors but not yet paid, which is why Cash is not affected at this stage. Instead, the amount of the dividend is recorded as a liability, as it is a future obligation. Thus, the correct journal entry would be:
Debit: Retained Earnings/Dividends
Credit: Cash Dividends Payable
This entry is part of the corporate accounting process in which the company recognizes the promise to distribute profits to its shareholders. The actual payout, or payment date, will later involve a debit to Cash Dividends Payable and a credit to Cash, reflecting the actual cash flow from the corporation to the shareholders.