Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

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Multiple Choice

Which of the following statements is true about the liabilities of a firm?

All liabilities are classified as non-current on the balance sheet.

Liabilities are only recorded when cash is paid out.

Liabilities represent obligations that a firm must settle in the future, typically by transferring assets or providing services.

Liabilities decrease owner's equity when incurred.

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Verified step by step guidance

Step 1: Understand the concept of liabilities in financial accounting. Liabilities are obligations that a firm owes to external parties, which must be settled in the future, typically by transferring assets (e.g., cash) or providing services.

Step 2: Analyze the first statement: 'All liabilities are classified as non-current on the balance sheet.' This is incorrect because liabilities are classified as either current (due within one year) or non-current (due after one year) on the balance sheet.

Step 3: Evaluate the second statement: 'Liabilities are only recorded when cash is paid out.' This is incorrect because liabilities are recorded when an obligation is incurred, not necessarily when cash is paid. For example, accounts payable are recorded when goods or services are received, even if payment is deferred.

Step 4: Examine the third statement: 'Liabilities represent obligations that a firm must settle in the future, typically by transferring assets or providing services.' This is correct because it accurately describes the nature of liabilities in financial accounting.

Step 5: Assess the fourth statement: 'Liabilities decrease owner's equity when incurred.' This is incorrect because liabilities do not directly decrease owner's equity. Instead, they increase the firm's obligations, and any impact on owner's equity would depend on subsequent transactions, such as expenses or losses.