Q.State, with reasons, whether each of the following is an Asset or a Liability:

This exercise checks whether you can correctly tell, item by item, what the business OWNS (an asset) from what it OWES (a liability).

Each item is classified by asking: does the business OWN this (an economic resource providing future benefit → Asset), or does the business OWE this to someone else (an obligation to pay → Liability)?

1. Building owned by the business — Asset. It is an economic resource owned by the business, providing benefit (as premises) over several years; specifically a Fixed, Tangible Asset.
2. Loan taken from a bank, repayable after 3 years — Liability. The business owes this amount to the bank; since it is repayable after more than a year, it is a Long-term Liability.
3. Cash in hand — Asset. Cash is an economic resource owned by the business, readily available for use; a Current Asset.
4. Amount payable to a supplier for goods purchased on credit — Liability. This is a Creditor balance — an amount the business owes for goods already received; a Current Liability. …

A quick test: if the item is something the business HOLDS or is OWED (a resource with future benefit), it is an Asset. If it is something the business must PAY to someone else in future, it is a Liability. For liabilities, a second check …

Students sometimes classify "Outstanding Salary" as an expense rather than a liability — while unpaid salary IS ultimately charged as an expense in the Profit and Loss Account for the period it relates to, the AMOUNT STILL UNPAID at the year-en …