Multiple Choice
Which of the following best describes the balance in the unamortized discount on bonds payable account?
9. Current Liabilities
Notes Payable
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Acquiring funds through borrowing represents which of the following?
A
An asset, such as accounts receivable
B
A revenue, such as sales income
C
Owner's equity, such as retained earnings
D
A liability, such as notes payable
Verified step by step guidance1
Understand the concept of liabilities: Liabilities represent obligations that a company owes to external parties, typically arising from borrowing or other financial commitments.
Recognize the nature of borrowing: When a company acquires funds through borrowing, it creates an obligation to repay the borrowed amount, often with interest, at a future date.
Identify the classification of borrowed funds: Borrowed funds are recorded as liabilities on the balance sheet because they represent amounts owed to creditors.
Distinguish liabilities from other financial elements: Borrowing does not create an asset (like accounts receivable), revenue (like sales income), or owner's equity (like retained earnings). Instead, it creates a liability, such as notes payable.
Conclude that borrowing funds is classified as a liability: Specifically, it is recorded under accounts like 'notes payable' or 'loans payable,' reflecting the company's obligation to repay the borrowed amount.
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