Which of the following accounts is classified as a liability on the financial statements?

• A. Accounts Payable
• B. Prepaid Expenses
• C. Common Stock
• D. Equipment

Answer: (A)

Verified step by step guidance

1. Understand the definition of a liability: A liability is an obligation that a company owes to external parties, typically arising from past transactions or events, and is expected to be settled through the transfer of assets, services, or other economic benefits.
2. Review the provided options and classify each account: Accounts Payable, Prepaid Expenses, Common Stock, and Equipment.
3. Analyze 'Accounts Payable': This account represents amounts owed by the company to suppliers or creditors for goods or services received. It is a liability because it reflects an obligation to pay in the future.
4. Analyze 'Prepaid Expenses': This account represents payments made in advance for goods or services to be received in the future. It is classified as an asset, not a liability, because it provides future economic benefits.
5. Analyze 'Common Stock' and 'Equipment': Common Stock is part of equity, representing ownership in the company, and Equipment is an asset used in operations. Neither is classified as a liability.