Which of the following statements about a liability is true?
A) A liability is restricted to being a legal debt.
B) A liability must result from a past transaction or event.
C) A liability arises when a business creates reserves for contingencies.
D) A liability results even if the entity can avoid the sacrifice of economic reasons.

Question

Quizplus · Accepted Answer

A liability must result from a past transaction or event. This means that there must be an obligation or a responsibility that was created in the past and now needs to be fulfilled. It cannot arise from future transactions or events. Choices A, C, and D are incorrect because they do not accurately describe the nature of liabilities.

Which of the Following Statements About a Liability Is True