Answered: Assume that your friend ALI ABBAS , who…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter8: Current And Contingent Liabilities

Section: Chapter Questions

Problem 12MCQ

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Assume that your friend ALI ABBAS , who is a player football , asks you to define and discuss the nature of a liability. Assist him by preparing a definition of a liability and by explaining to him what you believe are the elements or factors inherent in the concept of a liability

Expert Solution

Step 1

Concept of Liability:

Liability refers to something for which someone is liable. It is something that a company or person owes and in accounting, it is usually money. The liability is recorded under the credit side of the BS (balance sheet) and these are settled in time and eventually transfers some economic benefits that include goods, money, or services. Liability usually includes the following:

Capital
Reserves and surplus
Accounts Payable and other current liabilities
Long term liabilities like bonds payable.
Premiums (earned or unearned)

Basically, it is an obligation between the two parties which is either not completed or paid.

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