Multiple Choice
Which of the following would be included as a liability on a commercial bank’s balance sheet?
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9. Current Liabilities
Types of Liabilities
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Which of the following is a type of liability?
A
Prepaid Expenses
B
Retained Earnings
C
Inventory
D
Accounts Payable
Verified step by step guidance1
Understand the concept of liabilities: Liabilities are obligations that a company owes to external parties, typically arising from past transactions or events. They are recorded on the balance sheet and represent amounts that must be settled in the future, often through payment of cash or delivery of goods/services.
Review the options provided: Prepaid Expenses, Retained Earnings, Inventory, and Accounts Payable. Determine whether each fits the definition of a liability.
Analyze Prepaid Expenses: These are assets, not liabilities. They represent payments made in advance for goods or services to be received in the future.
Analyze Retained Earnings: This is part of equity, not a liability. It represents the accumulated profits of a company that are reinvested in the business rather than distributed as dividends.
Analyze Accounts Payable: This is a liability. It represents amounts owed by the company to suppliers for goods or services received but not yet paid for, fitting the definition of a liability.
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