Contingent Liabilities

Liabilities which come into existence upon happening or not happening of certain event are called contingent liabilities.

Contingent liabilities are liabilities that may be incurred by an entity depending on the outcome of a future event such as a court case. These liabilities are recorded in a company's accounts and shown within the record when both probable and reasonably estimable as 'contingency' or 'worst case' financial outcome. A footnote to the record might describe the nature and extent of the contingent liabilities. The likelihood of loss is delineate as probable, reasonably attainable, or remote. the power to estimate a loss is delineate as celebrated, fairly estimable, or not reasonably estimable.

 contingent liability could be a potential liability…it depends on a future event occurring or not occurring. for example, if a parent guarantees a daughter’s initial car loan, the parent features a contingent liability. If the have no makes her automobile payments and pays off the loan, the parent can don't have any liability. If the daughter fails will the payments, the parent will have a liability.

If a company is sued by a former employee for $500,000 for age discrimination, the company has a contingent liability. If the company is found guilty, it will have a liability. However, if the company is not found guilty, the corporate will not have an actual liability.

In accounting, a contingent liability and therefore the connected contingent loss square measure recorded with a journal entry as long as the contingency is each probable and therefore the quantity is calculable.

If a contingent liability is barely attainable (not probable), or if the number can not be calculable, a journal entry isn't needed. However, a speech act is needed.