Multiple Choice
Which of the following is a characteristic of a liability?
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9. Current Liabilities
Types of Liabilities
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What is the debt a firm owes to an outside party referred to as?
A
Liability
B
Asset
C
Revenue
D
Equity
Verified step by step guidance1
Understand the concept of 'liability' in financial accounting: A liability is a firm's obligation to pay money or provide services to an outside party in the future. It represents debts or obligations arising from past transactions.
Differentiate between the given options: Liability, Asset, Revenue, and Equity. Each term has a distinct meaning in financial accounting. For example, assets are resources owned by the firm, revenue is income earned, and equity represents the owner's claim on the firm's assets.
Focus on the definition of 'liability' and compare it to the problem statement: The problem refers to the debt a firm owes to an outside party, which aligns with the definition of liability.
Eliminate incorrect options: Assets, revenue, and equity do not describe debts owed to outside parties. Assets are owned resources, revenue is income, and equity is the owner's claim on assets.
Conclude that the correct term for the debt a firm owes to an outside party is 'liability,' based on the definitions and elimination process.
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