Contingent Liabilities definitions Flashcards
Contingent Liabilities definitions
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Contingency Uncertain situation in accounting that may result in a gain or loss, depending on the outcome of a future event. Contingent Liability Potential obligation arising from a past event, recognized if payment is probable and the amount can be estimated. Contingent Gain Possible benefit from an uncertain event, not recorded until it is realized due to accounting conservatism. Accrual Recording of an expense or liability in the financial statements before payment is made, based on probability and estimability. Disclosure Explanation provided in financial statement footnotes about uncertainties or risks not recognized as liabilities. Footnotes Sections in financial statements offering additional details about items such as contingencies and potential obligations. Probability Likelihood that a future event will require payment, categorized as probable, reasonably possible, or remote. Estimability Ability to reasonably determine the amount of a potential loss or obligation. Probable Classification indicating a high likelihood that a future event will result in a loss or payment. Reasonably Possible Classification for events with more than a remote but less than probable chance of resulting in a loss. Remote Classification for events with only a slight chance of resulting in a loss, requiring no action in financial statements. Conservatism Accounting principle favoring the recognition of potential losses over gains to avoid overstating financial health. Legal Expense Cost recognized when a probable and estimable loss from a legal case is accrued as a liability. Financial Statements Formal records, including balance sheet and footnotes, that present an entity’s financial position and disclosures. Obligation Potential or actual duty to pay or perform, often arising from past transactions or events.
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