Texas A&M University (TAMU) ACCT 209 Survey of Accounting Principles Exam 1 Practice

A liability is a present obligation to transfer assets or provide services in the future, arising from past events. Wages payable fits this because it represents wages earned by employees but not yet paid, creating a current obligation to payout cash. That’s why it appears on the balance sheet as a current liability.

The other items are not liabilities: land is an asset because it will provide future benefits to the company; office furniture is also an asset for the same reason. Prepaid expenses are assets too, since they represent payments made in advance for goods or services that will be consumed later.