Liabilities are settled by an outflow of:

**The reasoning** Think of liabilities as debts your business owes. When you borrow ₦50,000 from a bank or buy goods on credit, you've created a liability — an obligation to pay later. Now, *how* do you settle (pay off) that debt? You give away something valuable: cash, inventory, or services. These valuables are **economic resources** — anything your business controls that has value. So: Liability settled → Cash paid out (or goods given) → Economic resources leaving the business This matches the accounting definition: "Liabilities are present obligations settled by transferring economic resources." **Why the wrong options tempt you** - **Income/Profit (A & C)**: These seem related to money, but they're *results* of operations, not what you *use* to pay debts. You can't hand over "profit" directly. - **Equity (D)**: That's owners' claim on assets. Converting debt to equity (like issuing shares to creditors) is rare and special — not the standard settlement method. **Quick takeaway** Liabilities are settled by giving away *tangible value* (cash, assets, services) — collectively called economic resources — not abstract accounting results like profit.