Multiple Choice
In the context of accounting for liabilities, an allocation base is:
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9. Current Liabilities
Types of Liabilities
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In order to be reported on the balance sheet, liabilities must:
A
Be related only to the company's equity holders
B
Represent present obligations arising from past events that are expected to result in an outflow of resources
C
Be expected to generate future economic benefits for the company
D
Be contingent on future events that are not probable
Verified step by step guidance1
Understand the definition of liabilities in financial accounting: Liabilities are obligations that a company owes to external parties, typically arising from past transactions or events, and are expected to result in an outflow of resources (e.g., cash, goods, or services).
Analyze the options provided in the problem. The correct definition of liabilities should align with the accounting standards, such as those outlined in frameworks like IFRS or GAAP.
Option 1: 'Be related only to the company's equity holders' is incorrect because liabilities are obligations to external parties, not equity holders.
Option 3: 'Be expected to generate future economic benefits for the company' is incorrect because liabilities represent obligations, not assets or benefits.
Option 4: 'Be contingent on future events that are not probable' is incorrect because liabilities must represent present obligations, not uncertain or improbable future events. The correct answer is Option 2: 'Represent present obligations arising from past events that are expected to result in an outflow of resources.'
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Types of Liabilities practice set
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