A contingent liability is accrued if which conditions are met? (select all that apply.)

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22-08-2022
Business

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A contingent liability is accrued if which conditions are met? (select all that apply.)

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qwseagreen qwseagreen · Answer 1 · 2022-08-28T17:08:49+02:00

A contingent liability is accrued if (1) The amount of the loss can be reasonably estimated. (2) It is probable that a future loss will occur. A contingent liability is a liability that may occur depending on the outcome of an uncertain future event. A contingent liability is recorded if the contingency is probable and the amount of the liability can be reasonably estimated. Unless both conditions are met, the liability can be disclosed in the footnotes to the financial statements.

Pending lawsuits and product warranties are examples of common contingent liability because their outcomes are uncertain. The accounting rules for reporting a contingent liability differ based on the estimated dollar amount of the liability and the likelihood of the event occurring. Accounting rules ensure that financial statement readers receive sufficient information.

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