Multiple Choice
Insurance on a company’s buildings would most likely be classified as a:
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9. Current Liabilities
Types of Liabilities
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
A liability has which of the following characteristics?
A
It represents a present obligation arising from past events.
B
It is an economic resource controlled by the entity.
C
It results in probable future economic benefits to the entity.
D
It is always payable within one year.
Verified step by step guidance1
Understand the definition of a liability: A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.
Analyze the first option: 'It represents a present obligation arising from past events.' This aligns with the definition of a liability, as liabilities are obligations that exist due to past transactions or events.
Analyze the second option: 'It is an economic resource controlled by the entity.' This describes an asset, not a liability. Assets are resources controlled by the entity, not obligations.
Analyze the third option: 'It results in probable future economic benefits to the entity.' This also describes an asset, as liabilities typically result in an outflow of economic benefits, not an inflow.
Analyze the fourth option: 'It is always payable within one year.' This is incorrect because liabilities can be either current (payable within one year) or non-current (payable after one year).
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