Accounting Fundamentals Certification (AFC) Practice Test

The term that describes financial obligations of a business to third parties is "liabilities." In accounting, liabilities represent the debts and financial responsibilities that a company owes to outside parties, which can include loans, accounts payable, mortgages, and other obligations. Liabilities are an essential part of a company's balance sheet, as they highlight the financial commitments that require future outflows of resources.

Understanding liabilities is crucial for assessing a company's financial health, as they directly impact cash flow and overall equity. The measurement of a business's liabilities helps stakeholders evaluate its solvency and operational efficiency. This contrasts with assets, which are resources owned by the company, equity, which represents ownership interest, and revenue, which refers to the income generated from normal business operations. Each of these other options plays a distinct role in financial statements and overall business valuation.