An amount owed by a business is known as

• A. Asset
• B. Expense
• C. Liability
• D. Revenue

Answer: (C)

An amount owed by a business is a liability because it represents an obligation to transfer assets or provide services in the future due to a past event, such as purchasing supplies on credit or borrowing money. Liabilities are the claims creditors have against the company’s assets and are shown on the balance sheet. This differs from assets, which are resources the business owns or controls; expenses, which are costs incurred in the process of earning revenue; and revenue, which is the income the business earns from its activities. Examples of liabilities include accounts payable, loans payable, and accrued expenses.