Multiple Choice
Which type of ratios measure the degree to which a firm relies on borrowed funds in its operations?
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9. Current Liabilities
Types of Liabilities
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Which of the following actions would increase your total loan balance (liabilities) on the balance sheet?
A
Accrued but unpaid interest on the loan
B
Recording depreciation expense
C
Making a principal payment on the loan
D
Receiving a loan forgiveness
Verified step by step guidance1
Understand the concept of liabilities on the balance sheet: Liabilities represent obligations or debts owed by a company, such as loans, accounts payable, or accrued expenses. An increase in liabilities means the company owes more.
Analyze the first option, 'Accrued but unpaid interest on the loan': Accrued interest is interest that has been incurred but not yet paid. When interest accrues, it is recorded as an expense and added to the loan balance, increasing liabilities.
Evaluate the second option, 'Recording depreciation expense': Depreciation expense reduces the value of assets over time but does not directly affect liabilities. It impacts the income statement and accumulated depreciation on the balance sheet, not the loan balance.
Consider the third option, 'Making a principal payment on the loan': Paying down the principal reduces the loan balance, which decreases liabilities. This action does not increase liabilities.
Review the fourth option, 'Receiving a loan forgiveness': Loan forgiveness reduces the amount owed, effectively decreasing liabilities. It does not increase the loan balance.
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Types of Liabilities practice set
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