Multiple Choice
In a finance lease, the lessee records:
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9. Current Liabilities
Types of Liabilities
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Which of the following best describes a liability that is expected to be settled within one year or the operating cycle, whichever is longer?
A
Current liability
B
Contingent liability
C
Deferred revenue
D
Long-term liability
Verified step by step guidance1
Understand the definition of a liability: A liability is an obligation of an entity arising from past transactions or events, which is expected to result in an outflow of resources embodying economic benefits.
Learn the definition of a current liability: A current liability is a liability that is expected to be settled within one year or the operating cycle, whichever is longer. Examples include accounts payable, short-term loans, and accrued expenses.
Compare the given options: Analyze each term provided in the question to determine which matches the definition of a current liability.
Option analysis: 'Contingent liability' refers to a potential obligation that depends on the occurrence of a future event. 'Deferred revenue' is revenue received in advance but not yet earned. 'Long-term liability' refers to obligations that are not expected to be settled within one year or the operating cycle.
Conclude that the correct answer is 'Current liability' based on the definition provided and the comparison of options.
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