Which of the following is a liability?

• A. Funds owed to others
• B. Resources that can be converted into cash in less than one year
• C. The amount of funds owners have invested in the interior design firm
• D. Income from services rendered

Answer: (A)

Liabilities are obligations the business owes to others that will require future sacrifices of resources, usually cash or goods. Funds owed to others fit this perfectly because they are amounts the firm must pay to suppliers, lenders, or contractors—debts the business has incurred.

Think of the other items as different parts of the financial picture: resources that can be converted into cash in less than a year describe current assets like cash or accounts receivable; the funds owners have invested describe owner’s equity, which is the owners’ stake in the company rather than a debt to someone else; income from services rendered is revenue, which increases equity and reflects earnings, not a liability.

So, the liability here is the money the firm owes to others.