A basic difference between loss contingencies and "real" liabilities is:
A) Liabilities stem from past transactions; loss contingencies stem from future events.
B) Liabilities always are recorded in the accounting records, whereas loss contingencies never are.
C) The extent of uncertainty involved.
D) Liabilities can be large in amount, whereas loss contingencies are immaterial.

Question

Quizplus · Accepted Answer

The basic difference between loss contingencies and "real" liabilities is the extent of uncertainty involved. Liabilities are recognized when they are probable and can be measured with reasonable accuracy, while loss contingencies are recognized when there is a reasonable possibility that an asset has been impaired, or a liability has been incurred, and the amount of the loss cannot be reasonably estimated. Furthermore, liabilities typically stem from past transactions, whereas loss contingencies stem from future events. The other answer choices are not accurate.

A Basic Difference Between Loss Contingencies and "Real" Liabilities Is