Multiple Choice
Which of the following situations is most likely to create a deferred tax asset?
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9. Current Liabilities
Types of Liabilities
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Which of the following accounts is classified as a liability account?
A
Equipment
B
Accounts Payable
C
Prepaid Insurance
D
Service Revenue
Verified step by step guidance1
Understand the definition of a liability account: A liability account represents obligations or debts that a company owes to external parties, which are expected to be settled in the future, typically through the transfer of cash, goods, or services.
Analyze each option provided in the question: Equipment, Accounts Payable, Prepaid Insurance, and Service Revenue.
Classify each account: Equipment is an asset account because it represents physical resources owned by the company. Prepaid Insurance is also an asset account because it represents payments made in advance for future benefits. Service Revenue is a revenue account, representing income earned from providing services.
Focus on Accounts Payable: Accounts Payable is classified as a liability account because it represents amounts owed by the company to suppliers or creditors for goods or services received but not yet paid for.
Conclude that the correct answer is Accounts Payable, as it fits the definition of a liability account.
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