When the company disburses the funds to its shareholders, the Dividends Payable account is debited, and the Cash account is credited. This transaction reflects the outflow of cash and the settlement of the liability. Accurate recording of these entries is essential to maintain the integrity of financial statements. It’s not always good news for investors when companies pay dividends out of retained earnings. Recording Dividends in Financial Statements The investor can prevent this if their broker permits a do not…