Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

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Multiple Choice

Which of the following statements is the correct definition of a liability?

A liability is any asset that generates future economic benefits for the entity.

A liability is a future economic benefit controlled by the entity as a result of past transactions.

A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.

A liability is an owner's residual interest in the assets of the entity after deducting all its expenses.

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Verified step by step guidance

Step 1: Understand the concept of a liability in financial accounting. A liability represents an obligation that an entity has to settle, typically involving the transfer of resources such as cash or other assets.

Step 2: Analyze the definition provided in the problem. A liability is described as a present obligation arising from past events, where settlement is expected to result in an outflow of resources embodying economic benefits.

Step 3: Compare the given options to the correct definition of a liability. Eliminate options that describe assets (future economic benefits controlled by the entity) or equity (owner's residual interest in the assets after deducting liabilities).

Step 4: Focus on the correct definition, which emphasizes the present obligation, past events, and expected outflow of resources. This aligns with the accounting standards' definition of a liability.

Step 5: Conclude that the correct answer is the statement that matches the definition of a liability as a present obligation arising from past events, leading to an outflow of resources embodying economic benefits.