Multiple Choice
Liabilities that are due within one year (or the company’s operating cycle if longer) are:
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9. Current Liabilities
Types of Liabilities
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On a balance sheet, liabilities should be recorded at their:
A
settlement amount
B
historical cost
C
present value
D
current obligations at the amount to be paid
Verified step by step guidance1
Understand the concept of liabilities: Liabilities represent obligations that a company owes to external parties, such as creditors or suppliers, and are recorded on the balance sheet.
Recognize the principle of measurement: Liabilities are typically recorded at the amount the company expects to settle them, which reflects the current obligations at the amount to be paid.
Clarify the options provided: Settlement amount refers to the amount required to settle the liability, historical cost refers to the original amount recorded, and present value refers to the discounted value of future payments.
Identify the correct approach: Liabilities should be recorded at their settlement amount, which aligns with the principle of recording current obligations at the amount to be paid.
Apply this understanding to the balance sheet: When preparing the balance sheet, ensure liabilities are listed at the amount the company expects to pay to settle them, reflecting their current obligations.
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