Multiple Choice
Which of the following is an example of a committed fixed cost?
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9. Current Liabilities
Types of Liabilities
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Sales taxes payable is reported as a(n):
A
Owner's equity
B
Contingent liability
C
Current liability
D
Long-term liability
Verified step by step guidance1
Understand the concept of sales taxes payable: Sales taxes payable represent the amount a company owes to the government for sales tax collected from customers. It is a liability because the company is obligated to pay this amount to the government.
Classify liabilities: Liabilities are categorized into current liabilities and long-term liabilities. Current liabilities are obligations that are expected to be settled within one year, while long-term liabilities are obligations that extend beyond one year.
Determine the nature of sales taxes payable: Since sales taxes are typically collected from customers and paid to the government within a short period (usually monthly or quarterly), they are considered short-term obligations.
Compare sales taxes payable to other liability types: Sales taxes payable do not fall under owner's equity, as they are not related to the ownership interest in the company. They are also not contingent liabilities, as they are definite obligations rather than potential ones.
Conclude the classification: Based on the short-term nature of sales taxes payable, they are classified as a current liability on the balance sheet.
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