Represents something owed to another business entity?

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Prepare for the Accounting CBE Exam with multiple-choice questions and detailed explanations. Study effectively with interactive quizzes and maximize your exam readiness. Get ahead and succeed!

Multiple Choice

Represents something owed to another business entity?

Explanation:
In accounting, a liability is an obligation of the entity arising from past events that will require a future outflow of resources. When something is owed to another business entity, it is a liability (for example, accounts payable or a loan payable). Assets are resources you own, not amounts you owe; revenues are income earned from operations, increasing equity; expenses are costs incurred to earn revenue, reducing equity. So the description points to a liability.

In accounting, a liability is an obligation of the entity arising from past events that will require a future outflow of resources. When something is owed to another business entity, it is a liability (for example, accounts payable or a loan payable). Assets are resources you own, not amounts you owe; revenues are income earned from operations, increasing equity; expenses are costs incurred to earn revenue, reducing equity. So the description points to a liability.

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