Funeral Arts National Board Practice Exam

What is considered a liability for a funeral home?

1. Inventory

2. Payroll

3. Marketing costs

4. Utilities

The correct answer is: Payroll

Payroll is considered a liability for a funeral home because it represents the ongoing financial obligation to pay employees for their work. This obligation affects the funeral home’s cash flow and financial statements, as payroll must be met regardless of the revenue generated. It reflects an expense that the funeral home incurs to operate and provide services, which needs to be managed effectively to maintain the financial health of the business. In contrast, inventory consists of physical goods or merchandise available for sale, such as caskets or urns, and is classified as an asset rather than a liability. Marketing costs and utilities are also considered operational expenses rather than liabilities; they are costs incurred to promote the business and to maintain services, like electricity and water, but do not represent debts or obligations owed to others. Thus, payroll stands out as a direct financial responsibility that impacts the funeral home's liabilities.