Which of the following is a liability?

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Study for the AAT Level 2 Introduction to Bookkeeping Test. Use flashcards and multiple choice questions with hints and explanations. Prepare effectively for your exam!

Multiple Choice

Which of the following is a liability?

Explanation:
A bank loan is a liability because it represents money the business owes to someone else and must repay in the future (often with interest). This creates a present obligation that appears on the balance sheet as a liability, classified as current if due within a year or non-current if due later. In contrast, stock (inventory) is an asset, income is revenue that increases equity, and expenses are costs recorded in the income statement and affect profit but are not obligations to repay. So the bank loan fits the definition of a liability.

A bank loan is a liability because it represents money the business owes to someone else and must repay in the future (often with interest). This creates a present obligation that appears on the balance sheet as a liability, classified as current if due within a year or non-current if due later. In contrast, stock (inventory) is an asset, income is revenue that increases equity, and expenses are costs recorded in the income statement and affect profit but are not obligations to repay. So the bank loan fits the definition of a liability.

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