Question

This case focuses on the following student learning objectives in this module as it relates to the course objectives (CO) described under the Getting Started - About This Course page:

Explain the role of liabilities in financing a business. CO1
Explain how to account for common types of current liabilities. CO2, CO3
Analyze and record bond liability transactions. CO2, CO3
Describe how to account for contingent liabilities. CO2, CO3
Use straight-line bond amortization. CO2, CO3
Use effective-interest bond amortization. CO2, CO3
Account for installment notes payable. CO2, CO3
Consider and respond to the following.
Describe 3 ways in which liabilities are used to finance business activities.

Answer 1

Liabilities are used by businesses to finance their activities through debt financing, trade credit, and deferred revenues.

Step-by-step explanation:

Liabilities are used by businesses to finance their activities in several ways:

1. Debt Financing: Businesses can borrow money from banks or issue bonds to raise funds for their operations. These borrowed funds create liabilities for the company.
2. Trade Credit: Businesses can also obtain financing by purchasing goods or services on credit. This allows them to acquire the necessary resources without immediate payment, creating a liability to the supplier.
3. Deferred Revenues: Some businesses receive advance payments from customers for goods or services that will be provided in the future. These advance payments create a liability until the goods or services are delivered.