Brent - thanks for the quick response - however - I see your point that a dividend payout reduces the Total Retained Earnings. So this is what I did - please advise me if I'm wrong.

1. I created the shareholder as a vendor.

2. I entered a purchase invoice "from him" in the amount of (say) $5000, payable by cheque from the chequing account.

3. I charged the Dividends Account I created under "Retained Earnings" in the Chart of Accounts.

4. This reduced the balances of both the chequing account and the Total Retained Earnings.

I think my confusion stems from the belief that Retained Earnings is considered an asset of the corporation, rather than a liability ..... or is it? 

I sincerely appreciate your input.

David 

Brent - thanks for the quick response - however - I see your point that a dividend payout reduces the Total Retained Earnings. So this is what I did - please advise me if I'm wrong.

1. I created the shareholder as a vendor.

2. I entered a purchase invoice "from him" in the amount of (say) $5000, payable by cheque from the chequing account.

3. I charged the Dividends Account I created under "Retained Earnings" in the Chart of Accounts.

4. This reduced the balances of both the chequing account and the Total Retained Earnings.

I think my confusion stems from the belief that Retained Earnings is considered an asset of the corporation, rather than a liability ..... or is it? 

I sincerely appreciate your input.

David