The accounting treatment of a contingent liability depends upon the likelihood of an actual obligation occurring.

Question

Quizplus · Accepted Answer

The accounting treatment of a contingent liability is determined by the probability of a future event occurring. If the likelihood is probable and the amount can be reasonably estimated, it should be recognized as a liability on the balance sheet. If the likelihood is possible or remote, it should be disclosed in the notes to the financial statements. If the likelihood is remote and the amount cannot be reasonably estimated, no disclosure is required.

The Accounting Treatment of a Contingent Liability Depends Upon the Likelihood