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 best defines a liability in financial accounting?

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

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

An increase in the owner's equity resulting from profitable operations.

A reduction in expenses that increases net income.

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Verified step by step guidance

Step 1: Understand the concept of a liability in financial accounting. A liability is defined as a present obligation of the entity arising from past events, where the settlement is expected to result in an outflow of resources (e.g., cash, goods, or services).

Step 2: Analyze the options provided in the question. Each option represents a different financial accounting concept, and you need to identify which one aligns with the definition of a liability.

Step 3: Eliminate incorrect options by comparing them to the definition of a liability. For example, 'A future economic benefit controlled by the entity' describes an asset, not a liability. Similarly, 'An increase in the owner's equity resulting from profitable operations' refers to revenue or gains, and 'A reduction in expenses that increases net income' pertains to expense management.

Step 4: Focus on the correct option, which states: 'A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources.' This matches the definition of a liability in financial accounting.

Step 5: Conclude that the correct answer is the option that aligns with the definition of a liability, emphasizing the key elements: present obligation, past events, and expected outflow of resources.