Multiple Choice
Operating department income statements are used to evaluate the performance of which type of responsibility centers?
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1. Introduction to Accounting
Types of Accounting
Multiple Choice
A measurable obligation arising from agreements, contracts, or laws is called a:
A
revenue
B
asset
C
equity
D
liability
Verified step by step guidance1
Understand the definition of a liability: A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.
Analyze the problem statement: It mentions a measurable obligation arising from agreements, contracts, or laws. This aligns with the definition of a liability, as liabilities are obligations that the entity is required to settle.
Compare the given options: Revenue refers to income earned, assets are resources owned by the entity, and equity represents the residual interest in the assets after deducting liabilities. None of these options describe an obligation.
Confirm the correct answer: Since the problem specifies a measurable obligation, the correct classification is 'liability,' as it matches the definition provided.
Conclude the reasoning: A liability is the correct answer because it represents obligations that arise from agreements, contracts, or laws, requiring settlement in the future.
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