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

Contingent liabilities must be recorded in the financial statements if:

The liability is possible but cannot be estimated.

It is probable that a future event will confirm the liability and the amount can be reasonably estimated.

The likelihood of the liability occurring is remote.

The liability is only disclosed in the notes regardless of probability or estimability.

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Verified step by step guidance

Understand the concept of contingent liabilities: Contingent liabilities are potential obligations that may arise depending on the outcome of a future event. They are classified based on the likelihood of occurrence and whether the amount can be reasonably estimated.

Review the criteria for recording contingent liabilities: A contingent liability must be recorded in the financial statements if it is probable that a future event will confirm the liability and the amount can be reasonably estimated.

Differentiate between recording and disclosure: If the liability is possible but cannot be estimated, or if the likelihood of occurrence is remote, it is not recorded in the financial statements but disclosed in the notes to the financial statements.

Apply the correct accounting treatment: For contingent liabilities that meet the criteria of being probable and reasonably estimable, they are recorded as a liability on the balance sheet and an expense in the income statement.

Ensure proper documentation: When recording or disclosing contingent liabilities, provide clear and detailed notes in the financial statements to inform users about the nature, timing, and uncertainty of the liability.