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Accounting Liabilities: Recognition Criteria

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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?

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

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

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

What is a condition for recognizing a liability?

A present obligation as a result of past events Signup and view all the answers

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

All of the above Signup and view all the answers

What is an example of obtaining economic benefits?

Consuming utilities Signup and view all the answers

When does an entity recognize a liability for ordered equipment?

When the equipment is delivered Signup and view all the answers

What is required for a present obligation to exist?

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