A contingent liability is recorded in the accounting records
A)if the contingency has not been described already in the notes to the financial statements.
B)if it possibly will become an actual liability and the exact amount is known.
C)under no circumstances.
D)if it probably will become an actual liability and the amount can be reasonably estimated.

Question

Quizplus · Accepted Answer

A contingent liability is recorded in the accounting records if it probably will become an actual liability and the amount can be reasonably estimated. This is in accordance with the accounting principle of conservatism, which requires companies to recognize potential losses as soon as they become probable and estimable, even if they have not yet been incurred.

A Contingent Liability Is Recorded in the Accounting Records