Castillo services paid k. castillo, the sole shareholder of castillo services, $5,000 in dividends during the current year. the entry to close the dividends account at the end of the year is $5,000.
Analysis:
Debit Retained Earnings $5,000; Credit Dividends Accounts $5,000. A $5,000 debit was made from the dividend account and a credit of the same amount in cash when dividends were paid to K. Castillo. Additionally, dividends are temporary accounts, all of which need to be zero before the next quarter. Dividends have therefore been credited to bring the balance to zero and will lower the remaining retained earnings at the end of the year. Retained earning account has been debited as a result.
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