Dividends payable is recorded as a credit on the ______.

• A. date of issuance
• B. date of record
• C. date of declaration
• D. date of payment

Answer: (C)

Verified step by step guidance

1. Understand the concept of dividends payable: Dividends payable is a liability account that represents the amount a company owes to its shareholders after declaring a dividend.
2. Learn the significance of the date of declaration: The date of declaration is when the company's board of directors formally announces the dividend and commits to paying it. This creates a legal obligation for the company.
3. Recognize the accounting treatment on the date of declaration: On this date, the company records a credit to the 'Dividends Payable' account to reflect the liability and a corresponding debit to 'Retained Earnings' to reduce equity.
4. Differentiate between other dates: The date of record is when the company determines which shareholders are eligible to receive the dividend, and the date of payment is when the dividend is actually paid. Neither of these dates involves recording dividends payable as a credit.
5. Apply this understanding: Since the liability is created on the date of declaration, dividends payable is recorded as a credit on this date.