With a line of credit, a liability arises:
A) As soon as the line is created.
B) As soon as any money is borrowed.
C) Upon repayment of the debt.
D) At maturity date.

Question

Quizplus · Accepted Answer

A line of credit creates a liability for the borrower as soon as any money is borrowed. Some lenders may also charge fees or interest from the time the line is created, but the liability is fully realized once funds are drawn. The liability is only relieved upon repayment of the debt. The maturity date of the line of credit may dictate when the borrower must repay any amounts outstanding, but it does not affect the timing of when the liability arises.

With a Line of Credit, a Liability Arises