Question

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

Answer 1

Answer:

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

1. It must involve probable outflow of economic resources
2. A present obligation that arose as a result of past transactions
3. It must involve a transfer of resources to another entity