Question

What is a liability? Can you provide an example of a liability account?

What is a liability? Can you provide an example of a liability account?

Homework Answers

Answer #1
  • Liability is a financial obligation that is to be repaid or paid off in near coming period.
  • Liability is that amount that a firm/corporation/individual is legally obliged to pay off in coming period.
  • For example, if a corporation purchased inventory on account, that is, it did not make cash payment, the amount of purchase that was not paid becomes a ‘liability’ for that corporation (recorded as Accounts payable].
  • Other examples of Liability Accounts are:

Interest Payable, Notes Payable, Bonds Payable, Long Term Loans

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