Liabilities – What Do You Owe? Quiz :Understanding Financial Statements: Company Position (Fundamentals of Accounting Specialization) Answers 2025

Question 1

What is a liability?
✅ An obligation that a company has to others
❌ It describes how well the company is performing
❌ An obligation to receive money from others
❌ It describes what the company owns

Question 2

Current liabilities are not expected to require payment to be made within a year. True or false?
✅ False
❌ True

(Current liabilities are expected to be settled within a year.)

Question 3

If a company receives several shipments from a supplier during a month, it can be more convenient to pay one time at the end of the month. The company will owe the supplier payment for the supplies, and the amount owed will be reported on the company balance sheet during the month as what?
✅ Accounts payable
❌ Cash
❌ Inventory
❌ Accounts receivable

Question 4

Accrued liabilities are not a liability, but are actually an expense. True or false?
✅ False
❌ True

Question 5

Which is NOT an example of an accrued liability?
✅ An obligation to return supplies that were delivered by mistake, but remain unpaid for
❌ An obligation to pay the staff
❌ An obligation to the government for taxes
❌ All of the above are accrued liabilities

Question 6

Accrued liabilities are a current liability on the balance sheet. True or false?
✅ True
❌ False

Question 7

Where is accounts payable found on the balance sheet?
✅ Current liability
❌ Non-current liability
❌ Current asset
❌ Non-current asset

Question 8

What section of the balance sheet can be thought of as a company’s debt?
✅ Both current liabilities & non-current liabilities → Based on options, the closest correct is:
✅ Non-current liabilities (long-term debt)

(Debt includes both current and non-current liabilities, but usually “company’s debt” refers to long-term obligations.)

Question 9

Obtaining a loan to buy a bakery that is in the process of making repayment would be considered a current liability since there are payments being made. True or false?
✅ True

(Portion of the loan due within a year is a current liability; remaining portion is non-current.)

Question 10

All debt on a company’s balance sheet is bad. True or false?
✅ False
❌ True

(Debt can be used strategically to grow the business.)

Question 11

There is always a cash payment needed to satisfy a liability. True or false?
✅ False
❌ True

(Some liabilities can be satisfied by delivering goods or services.)

Question 12

Which is a long-term liability?
✅ Obtaining a loan to buy a building
❌ An account payable to a supplier
❌ Goodwill
❌ Accrued liability

Question 13

When a company has long-term debt, the debt agreement often requires the company to pay a portion of the debt each year. True or false?
✅ True
❌ False

Question 14

What is an advantage to a company of taking on debt?
✅ All of the above (Obtaining funds to grow the business, fast, or to take advantage of opportunities)
❌ Obtaining funds to grow the business
❌ Obtaining funds fast
❌ Obtaining funds to take advantage of opportunities

Question 15

What measurement question can be answered by looking at liabilities on the balance sheet?
✅ What do you owe?
❌ What do you own?
❌ How did you perform?
❌ All of the above

Question 16

If you delivered inventory to John, but John had not paid for the inventory yet, what liability account for John would increase?
✅ Accounts receivable
❌ Prepaid expense
❌ Accounts payable
❌ Cash

(From your company’s perspective, John owes you → Accounts receivable.)

Question 17

A dance studio that receives payment from customers to deliver children dance lessons is an example of the dance studio’s what?
✅ Liabilities
❌ Assets
❌ Revenue
❌ Expense

(Unearned revenue is a liability until the service is performed.)

Question 18

A company’s liability can decrease by
✅ All of the above (Making a payment, performing a service, delivering a product)
❌ The company making a payment
❌ The company performing a service
❌ The company delivering a product

Question 19

Which is NOT a liability on the balance sheet?
✅ Inventory
❌ Long-term debt
❌ Accrued liabilities
❌ Accounts payable

Question 20

What is another term for non-current liabilities?
✅ Both of the above (Long-term liabilities & Debt)
❌ Long-term liabilities
❌ Debt
❌ None of the above