Which term denotes the financial obligation or responsibility of a business?

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

Answer: (B)

In accounting, a liability denotes the financial obligation a business must settle. A liability arises from past events and requires future outflows of resources, such as paying suppliers (accounts payable), repaying a loan, or covering wages payable. On the balance sheet, liabilities sit alongside assets and equity, reflecting how assets are financed (Assets = Liabilities + Equity). Assets are what the company owns, equity is the owners' claim after liabilities, and revenue is income earned from operations; neither asset, equity, nor revenue describes an obligation. So the correct term is liability.