Multiple Choice
As a condition for a loan, a bank requires the borrower to provide collateral. What type of liability does this create for the borrower?
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9. Current Liabilities
Types of Liabilities
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following best describes money borrowed from a business or investor that must be repaid over time with interest?
A
Accrued Expenses
B
Accounts Payable
C
Unearned Revenue
D
Notes Payable
Verified step by step guidance1
Understand the concept of Notes Payable: Notes Payable refers to a liability where a business borrows money from a lender or investor and agrees to repay the principal amount along with interest over a specified period.
Differentiate Notes Payable from other terms: Accrued Expenses are liabilities for expenses incurred but not yet paid. Accounts Payable represents amounts owed to suppliers for goods or services received. Unearned Revenue is a liability for payments received in advance for goods or services yet to be delivered.
Recognize the key characteristic of Notes Payable: It involves a formal agreement or promissory note specifying repayment terms, including interest, which distinguishes it from other liabilities.
Relate Notes Payable to financial accounting: In accounting, Notes Payable is recorded as a liability on the balance sheet, reflecting the obligation to repay borrowed funds.
Apply this understanding to the question: The correct answer is Notes Payable because it best describes money borrowed from a business or investor that must be repaid over time with interest.
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