Future Business Leaders of America (FBLA) Accounting Practice Test

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Prepare for the FBLA Accounting Test with practice quizzes and comprehensive questions. Each question is designed to help deepen your understanding and enhance your readiness for the exam. Are you ready to excel?

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What is the definition of liability?

An amount owed by a business
The total assets owned by a business
The revenue generated from sales
The owner's investment in the business

The correct answer is: An amount owed by a business

Liability is defined as an amount owed by a business, representing obligations that the business needs to settle in the future. This can include loans, accounts payable, mortgages, and any other debts or financial commitments that the company has incurred during its operations. Liabilities are crucial to understanding a business's financial health, as they directly impact the company's net worth and cash flow. In accounting, liabilities are typically recorded on the balance sheet and can be classified as either current or long-term, depending on when they are due. Current liabilities are those that are expected to be settled within one year, while long-term liabilities are obligations that extend beyond one year. Understanding liabilities helps businesses manage their finances effectively and plan for future expenditures and growth opportunities.