Which statement correctly defines liabilities?

Which statement correctly defines liabilities?

• A. Everything owed by a business
• B. The owner’s equity claim
• C. Net worth
• D. Everything owned by a business

Answer: (A)

Liabilities are the obligations a business owes to others, arising from past events and requiring future sacrifice of resources. The statement that liabilities are everything owed by a business matches this idea, since it encompasses debts and obligations the company must settle, such as loans, accounts payable, and accrued expenses. The other options describe different concepts: owner’s equity is the claim of owners on the business after liabilities are paid, net worth is another way to refer to owner’s equity, and everything owned by the business refers to assets.

Liabilities are the obligations a business owes to others, arising from past events and requiring future sacrifice of resources. The statement that liabilities are everything owed by a business matches this idea, since it encompasses debts and obligations the company must settle, such as loans, accounts payable, and accrued expenses.

The other options describe different concepts: owner’s equity is the claim of owners on the business after liabilities are paid, net worth is another way to refer to owner’s equity, and everything owned by the business refers to assets.