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

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13 March, 21:35

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

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Answers (1)

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Sassafras · 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