From the course: Financial Accounting Part 1
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Contingent liabilities
From the course: Financial Accounting Part 1
Contingent liabilities
- Past activities or circumstances may give rise to possible future liabilities although obligations do not exist on the date of the balance sheet. These possible claims are known as contingent liabilities. They are potential obligations involving uncertainty as to possible losses. As future events occur or fail to occur, this uncertainty will be resolved. Delaying the recognition of an uncertain item until all uncertainty has been removed can fail to reflect the existence of significant liabilities or assets that are highly likely to materialize and that exist because of past transactions or events. A good example of a contingent liability is the co-signer's obligation on a co-signed loan. The co-signer has no existing obligation but may have one in the future depending on whether the borrower defaults on the loan. As another example, not recording a future environmental obligation resulting from past activities…
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