On which financial statement would the Dividends account appear?

• A. Statement of Retained Earnings
• B. Income Statement
• C. Statement of Cash Flows
• D. Balance Sheet

Answer: (A)

Verified step by step guidance

1. Understand the purpose of each financial statement: The Income Statement reports a company's revenues and expenses, the Statement of Retained Earnings shows changes in retained earnings including dividends, the Statement of Cash Flows tracks cash inflows and outflows, and the Balance Sheet provides a snapshot of assets, liabilities, and equity.
2. Recognize that dividends represent a distribution of earnings to shareholders and are not an expense or revenue. Therefore, they do not appear on the Income Statement.
3. Note that dividends are a reduction in retained earnings, which is why they are reported on the Statement of Retained Earnings. This statement reconciles the beginning and ending retained earnings for a period.
4. Understand that dividends are also a cash outflow, but they are not classified as operating, investing, or financing activities in the Statement of Cash Flows. Instead, they are shown as a financing activity.
5. Confirm that dividends do not appear on the Balance Sheet directly, as they are not an asset, liability, or equity account. However, their impact is reflected in the retained earnings section of equity after being deducted.