Chapter 13, Problem 13.1Q

What are the essential characteristics of liabilities for purposes of financial reporting?

To determine

Liabilities

Liabilities are referred to as the obligations of the business towards the creditors for operating the business. Liabilities may be short-term or long-term depending upon the time duration in which it is paid back to the creditors.

To Identify: Three main characteristics of liabilities.

Explanation of Solution

The three main characteristics of liabilities are as follows:

1. Liabilities exist for the past transaction or event of the business
2. Liabilities become the future obligation of the business either to be paid in cash or through goods and services.
3. Liabilities are part of the obligation, a business cannot avoid.
4. Liabilities are present responsibility for sacrificing asset in future.

Conclusion

Thus, the above are the three main characteristics of liabilities.