Answered: gent liab

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Discuss how to report contingent liabilities.

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Expert Solution

Step 1

Contingent Liability

A contingent liability is an obligation that may arise as a result of the outcome of a future event that is unknown.
If the contingency is foreseeable amount of responsibility can be fairly anticipated, contingent liability is recorded. Unless all requirements are satisfied, liability may be reported in a footnote of financial statements.