Understanding Liabilities

What is a basic definition of a liability?

• Something that generates income

• Something you own

• Something that has no value

• Something you owe

If you borrow money to buy a house, what is the loan considered?

• An expense

• A revenue

• An asset

• A liability

What is a mortgage?

• A type of income

• A type of expense

• A type of loan

• A type of asset

If you use a credit card to pay bills, what is the outstanding balance considered?

• A liability

• A profit

• An asset

• An income

When you use borrowed money to pay for expenses, what do you add to your balance sheet?

• Assets

• Income

• Equity

• Liabilities

What should you include on your personal balance sheet if you use a credit card to pay bills?

• The outstanding balance of the credit card as a liability

• The outstanding balance of the credit card as an asset

• The outstanding balance of the credit card as an income

• The outstanding balance of the credit card as an equity

What are the two criteria for something to be considered a personal liability?

• It must be an expense and have a measurable value

• It must be owned and have a measurable value

• It must be owed and have a measurable value

• It must generate income and have a measurable value

What additional criterion is required for a business liability?

• It must be expected to take money out of your pocket

• It must be an asset

• It must be a profit

• It must generate income

What is the accounting definition of a liability?

• Something a business spends that has a measurable value

• Something a business owns that has a measurable value

• Something a business owes that has a measurable value and is expected to result in the future sacrifice of an economic benefit

• Something a business earns that has a measurable value

What is the difference between personal and business liabilities?

• Personal liabilities are owed by individuals, while business liabilities are owed by businesses

• Personal liabilities generate income, while business liabilities generate expenses

• Personal liabilities are assets, while business liabilities are liabilities

• Personal liabilities are not measurable, while business liabilities are measurable