Question

The definition of a liability is:

A. Debts of a business that have yet to be paid
B. Resources acquired by a business that are consumed by the business consumed by the business
C. Purchase of goods or services consumed during the accounting period

Answer 1

A liability is a debt or obligation a business owes, shown on the right side of a balance sheet. It is subtracted from assets to calculate a company's net worth. Understanding liabilities is essential for assessing a company's financial health. Option A

Step-by-step explanation:

In accounting, a liability is a debt or an obligation that a business owes and is expected to settle in the future. This can include loans, mortgages, accounts payable, and any other forms of debt. For example, when an individual takes out a mortgage to buy a home, the home represents an asset, while the mortgage itself is a liability.

In a bank's balance sheet, liabilities might consist of customer deposits and money the bank owes to others. Subtracting total liabilities from total assets gives you the net worth of the bank, which is a critical indicator of the bank's financial health.

The 'T' in a T-account is a representation of a business's ledger account and is used to depict the structure of this balance sheet. On the left side of the T-account, you have assets, which are things of value owned by the bank, such as cash, reserves, and loans made to customers. On the right side, you have liabilities - what the bank owes to others, including customer deposits.

In short, liabilities are crucial in understanding a company's financial position and are accounted for on the right side of a balance sheet. Option A