Question

The following transactions occur for Badger Biking Company. Which one represents a liability?

a) Purchase of new bikes for resale
b) Sale of old inventory
c) Loan obtained from the bank
d) Payment to suppliers for parts

Answer 1

The loan obtained from the bank represents a liability.

Step-by-step explanation:

A liability in accounting represents an obligation or debt owed by a company to another party. Of the given transactions, the loan obtained from the bank represents a liability because it creates a legal responsibility for the company to repay the borrowed funds in the future.