Which of the following is a liability?

• A. Cash
• B. Accounts Receivable
• C. Common Stock
• D. Notes Payable

Answer: (D)

A liability is a present obligation to transfer something of value in the future, arising from past events. Notes payable fits this because it represents a formal debt owed to a creditor, with a promise to repay the amount borrowed (often with interest) by a specified date. That future outflow of cash is exactly what makes it a liability.

The other items are not liabilities: cash is an asset, representing resources the company owns; accounts receivable is also an asset, representing amounts owed to the company; common stock is equity, representing owners’ claims after liabilities are settled.