Understanding Contingent Liabilities: What You Need to Know

🔑Contingent liabilities are potential liabilities that arise from past events but depend on future events or decisions.

💼Examples of contingent liabilities include pending lawsuits, disagreements with government authorities, and warranty claims.

💰There are three types of contingent liabilities: probable, possible, and remote. Each type has different rules for reporting and disclosure.

📝Probable liabilities have a higher chance of occurring and can be estimated, while possible liabilities have less certainty and their amounts cannot be estimated.

💡Remote liabilities have very little likelihood of occurring and do not require accrual or disclosure.

What is a contingent liability?

—A contingent liability is a potential liability that depends on a future event or decision. It arises from a past event or transaction.

What are some examples of contingent liabilities?

—Examples of contingent liabilities include pending lawsuits, disagreements with government authorities, and warranty claims.

What are the three types of contingent liabilities?

—The three types of contingent liabilities are probable, possible, and remote.

How are probable liabilities different from possible liabilities?

—Probable liabilities have a higher chance of occurring and can be estimated, while possible liabilities have less certainty and their amounts cannot be estimated.

What are remote liabilities?

—Remote liabilities have very little likelihood of occurring and do not require accrual or disclosure.

00:00A contingent liability is a potential liability that arises from a past event but depends on a future event or decision.

00:21Examples of contingent liabilities include pending lawsuits, disagreements with government authorities, and warranty claims.

00:58There are three types of contingent liabilities: probable, possible, and remote. They have different rules for reporting and disclosure.

01:11Probable liabilities have a higher chance of occurring and can be estimated, while possible liabilities have less certainty and their amounts cannot be estimated.

03:20Remote liabilities have very little likelihood of occurring and do not require accrual or disclosure.