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What obligation does an organization have regarding accounts payable as of the balance sheet date?

  1. It has no liability for accounts payable.

  2. The organization has a liability for the accounts payable.

  3. Accounts payable are only recognized at the time of payment.

  4. Liabilities for accounts payable can be disregarded in audits.

The correct answer is: The organization has a liability for the accounts payable.

An organization has a liability for accounts payable as of the balance sheet date because accounts payable represent amounts the organization owes to suppliers for goods and services received but not yet paid for. This liability is recognized in the financial statements under current liabilities because it embodies a present obligation arising from past transactions. As per the accrual basis of accounting, which is fundamental to the preparation of financial statements, liabilities are recorded when incurred, not when paid. This means that if an organization has received goods or services and has not yet settled the payment by the balance sheet date, it must still acknowledge this liability. This ensures that the financial statements accurately reflect the organization's obligations and provide a true picture of its financial position. In auditing, accounts payable are significant as they can impact the completeness and accuracy of financial reporting. Auditors examine these accounts to ensure that they are properly recorded and disclosed, thereby verifying that the financial statements give a fair representation of the organization’s financial status.