Liabilities Quiz

Which type of liability is supported by oral or informal promises to pay by the debtor?

Which type of liability is supported by written or formal promises to pay by the debtor in the form of promissory notes?

Which type of liability arises from interest-bearing liabilities and represents interest incurred but not yet paid?

Which type of liability represents salaries already earned by employees but not yet paid by the business?

Which type of liability represents utilities (e.g., electricity, water, telephone, internet, cable TV, etc.) already used but not yet paid?

Types of Liabilities

Oral or Informal Promises
- Represented by verbal commitments made by a debtor to repay a debt.
- Generally categorized as unsecured liabilities due to lack of formal documentation.
Written or Formal Promises (Promissory Notes)
- Established through formal agreements known as promissory notes.
- These documents clearly outline the terms of the debt, including repayment schedules and interest rates.
Interest-Incurred Liabilities
- Arise from interest-bearing obligations where interest has accrued but remains unpaid.
- Reflects the financial cost of borrowing that has accumulated over time but is yet to be settled.
Salaries Payable
- Linked to compensation earned by employees which has not yet been disbursed.
- Represents an obligation for businesses to pay their workforce for completed labor.
Utilities Payable
- Incorporates expenses for services such as electricity, water, and telecommunications that have been consumed but not paid for.
- This liability highlights ongoing operational costs that the business needs to address.

Test your knowledge of liabilities with this quiz! Learn about accounts payable, notes payable, and interest payable. Improve your understanding of these financial obligations and their impact on a company's balance sheet.