Which of the following is an example of a liability?

Which of the following is an example of a liability?

• A. Taxes payable
• B. A vehicle
• C. Cash
• D. Inventory

Answer: (A)

Liabilities are obligations the company owes to others that will require an outflow of resources in the future. Taxes payable fits this because it represents taxes the business has incurred but not yet paid to the government, so it is an obligation the company must settle. If due within a year, it’s a current liability. The other items are assets: a vehicle is a resource the business uses and controls, cash is the money available, and inventory consists of goods the business plans to sell. Assets provide future economic benefits, not obligations. So taxes payable is the clear example of a liability.

Liabilities are obligations the company owes to others that will require an outflow of resources in the future. Taxes payable fits this because it represents taxes the business has incurred but not yet paid to the government, so it is an obligation the company must settle. If due within a year, it’s a current liability. The other items are assets: a vehicle is a resource the business uses and controls, cash is the money available, and inventory consists of goods the business plans to sell. Assets provide future economic benefits, not obligations. So taxes payable is the clear example of a liability.