To be recorded as a liability, an item must meet three specific conditions. Two of them are: it must involve probable future sacrifice of economic resources by the entity, and it must be a present obligation that arose as a result of a past transaction. Which one of the following is the third condition?

The item must reduce the market value of the recording entity

It must involve a transfer of resources to another entity

It must involve the expenditure of cash now or in the future

It must not cause total liabilities to exceed total assets

Question

Myah Suarez

Business

3 February, 04:59

To be recorded as a liability, an item must meet three specific conditions. Two of them are: it must involve probable future sacrifice of economic resources by the entity, and it must be a present obligation that arose as a result of a past transaction. Which one of the following is the third condition?

The item must reduce the market value of the recording entity

It must involve a transfer of resources to another entity

It must involve the expenditure of cash now or in the future

It must not cause total liabilities to exceed total assets

+4

Answers (1)

Know the Answer?

Roger Roberson · Answer 1

It must involve the transfer of resources to another entity.

Explanation:

A liability is defined as an obligation of future outflow of economic benefits that arise as a result of past actions either through sales, exchange of assets or services, or any other business related events.

Before a liability can be recognized, it must satisfy these three conditions

It must involve probable outflow of economic resources A present obligation that arose as a result of past transactions It must involve a transfer of resources to another entity