The payment of a previously declared cash dividend has an overall effect of: Reducing retained earnings and reducing liabilities by the amount of the dividend. Reducing retained earnings and increasing contributed capital by the same amount. Reducing assets and reducing liabilities by the amount of the dividend. Reducing assets and reducing retained earnings by the amount of the dividend.

Reducing assets and reducing liabilities by the amount of the dividend.

Explanation:

In Financial accounting, liability can be defined as the amount of money being owed by an individual or organization to another.

Simply stated, liability is a debt being owed and as such it usually has "payable" in its account title on the balance sheet.

Generally, liabilities are recorded on the right side of the balance sheet and it comprises of financial informations such as warranties, bonds, loans, deferred revenues, mortgages, account payable etc.

A current asset can be defined as all of the assets that are being owned by a company or business entity and are expected to be converted into their cash equivalent through sales or use within a period of one year of its date on the organization's balance sheet.

The payment of a previously declared cash dividend has an overall effect of reducing assets and reducing liabilities by the amount of the dividend. Thus, cash dividends reduces an asset and liability by it's equivalent amount at a specific period of time.