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[Result in immediate disbursement --Bank balance will reduce and will result in decrease in working Capital]
B)
the entry at declaration date
Dr. Retained earnings , Cr. Dividends payable
this means that equity will be decreased and current Liabilities will be increased . So working capital will be reduced.
At the time of declaration (Cash Dividend)
1.Increase Liabilities (lead to reduction in Working Capital)
2.Decrease Equity
At the time of declaration (Stock Dividend)
1.No net effect on Equity
2. No effect in Working Capital
Note:
At time of declaration of dividend, no effect on Bank account
2 Is correct answer
In the declaration date
Dr / Retained Earning
Cr / dividends Payable
in the distribution date
Dr / dividends payable
Cr / Cash
Declaration dividend will reduce the working Capital
Working Capital= Current Assets - Current Liabilities.Decrease in working capital because it will increase the liability.
Agrred with option -2
If equity will be decreas then working capital will be reducee.
2 - Reduce Working Capital As you have to recognize Dividend Payable which is current liability.
and increase in current liability will reduce Working Capital
decrease or reduce working capital
Increase Assets of Company