Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Contingent Liabilities

Financial Accounting

9. Current Liabilities

Contingent Liabilities

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Multiple Choice

Which of the following journal entries is used to accrue a contingent liability that is both probable and can be reasonably estimated?

Debit Liability; Credit Expense

Debit Asset; Credit Revenue

Debit Revenue; Credit Asset

Debit Expense; Credit Liability

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Verified step by step guidance

Understand the concept of contingent liabilities: A contingent liability is a potential obligation that may arise depending on the outcome of a future event. It is recorded in the financial statements only if it is both probable and can be reasonably estimated.

Review the accounting treatment for contingent liabilities: When a contingent liability meets the criteria of being probable and reasonably estimable, it must be accrued in the financial statements. This involves recognizing an expense and a liability.

Analyze the journal entry components: To accrue a contingent liability, the expense account is debited to reflect the cost or loss, and the liability account is credited to recognize the obligation.

Compare the provided options: Evaluate each option to determine which matches the correct accounting treatment for accruing a contingent liability. The correct journal entry is 'Debit Expense; Credit Liability.'

Conclude the reasoning: The correct journal entry reflects the increase in expenses (debit) and the recognition of the liability (credit), aligning with the accounting standards for contingent liabilities that are probable and reasonably estimable.