The effect is a decrease of $7235,640 in the company's retained earnings and cash balance, resulting in a decrease in assets and equity. Before the dividend is actually paid out, the balance sheet will show a debit to its retained earning account of $7,235,640 and a credit to the dividends payable account of $7235,640. After the dividends are paid, the dividend payable account is credited and the dividends payable account is debited in the same amount, and these accounts are no longer shown on the balance sheet.
