Future Business Leaders of America (FBLA) Advertising Practice test

A financial obligation or amount owed by a company is called a?

1. Accounts receivable

2. Liability

3. Asset

4. Tangible asset

The correct answer is: Liability

A financial obligation or amount owed by a company is defined as a liability. In accounting, liabilities represent the debts or obligations that a business has to external parties, which could include loans, accounts payable, mortgages, or any other form of debt. These obligations must be settled in the future through the transfer of economic benefits, typically in the form of cash or services. Understanding liabilities is crucial for assessing a company’s financial health, as they are a key component of the balance sheet and play an essential role in determining financial ratios. Liabilities are contrasted with assets, which represent resources owned by the company that are expected to generate future economic benefits. Recognizing and managing liabilities effectively is vital for the sustainability and growth of a business.