Rita does chores for her neighbors and makes $45 each weekend. She owes her sister $80. Rita has $178 in coins and a collection of baseball cards worth $475. Which is a liability?

• A. the money she owes her sister
• B. the coins
• C. the baseball cards
• D. the chores she does

Answer: (A)

A liability is an obligation to pay or settle a debt. In this scenario, the amount Rita owes her sister is something she must pay in the future, so it counts as a liability. The coins she has and the baseball cards are assets—things of value she owns that could be converted to cash or used in some way. The chores she does are activities that bring in money, i.e., income, not debts or obligations. So the only thing that fits the definition of a liability here is the money she owes to her sister.