Accounting Liabilities: Recognition Criteria
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Questions and Answers

What is an obligation in accounting?

  • A duty or responsibility that an entity has no practical ability to avoid. (correct)
  • A forecast of future events.
  • A legal contract with a customer.
  • A transfer of economic resources.

    • What is a necessary condition for a liability to exist in accounting?

  • The entity has a past event that has not occurred.
  • The entity has an obligation to transfer an economic resource. (correct)
  • The entity has an economic resource to transfer.
  • The entity has a future event that is likely to occur.

    • Which of the following can give rise to an obligation?

  • A change in market prices.
  • Entity's customary practices or published policies. (correct)
  • A change in government policy.
  • A natural disaster.

    • Is it necessary to know the identity of the counterparty for an obligation to exist?

    <p>No, it is not necessary to know the identity of the counterparty.</p> Signup and view all the answers

    Can an obligation exist if the exact amount of the obligation is unknown?

    <p>Yes, an obligation can exist even if the exact amount is unknown.</p> Signup and view all the answers

    What is a condition for recognizing a liability?

    <p>A present obligation as a result of past events</p> Signup and view all the answers

    What is an example of an obligation to transfer an economic resource?

    <p>All of the above</p> Signup and view all the answers

    What is an example of obtaining economic benefits?

    <p>Consuming utilities</p> Signup and view all the answers

    When does an entity recognize a liability for ordered equipment?

    <p>When the equipment is delivered</p> Signup and view all the answers

    What is required for a present obligation to exist?

    <p>The entity has taken an action or obtained economic benefits</p> Signup and view all the answers

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