Where is a contingent liability recorded?
A contingent liability that is both probable and the amount can be estimated is recorded as 1) an expense or loss on the income statement, and 2) a liability on the balance sheet. As a result, a contingent liability is also referred to as a loss contingency. Warranties are cited as a contingent liability that meets both of the required conditions (probable and the amount can be estimated). Warranties will be recorded at the time of a product’s sale with a debit to Warranty Expense and a credit to Warranty Liability.
A loss contingency which is possible but not probable, or the amount cannot be estimated, will not be recorded in the accounts. Rather, it will be disclosed in the notes to the financial statements.
A loss contingency that is remote will not be recorded and will not have to be disclosed in the notes to the financial statements.
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what IS dout debit?
Contingent Liability is a liability contingent on happening of a certain event that may or may not take place.Hence, it may or may not arise.
It is prudent to provide for contingent losses but liabilities should not be recorded in books.
They just appear in notes in financial statements as disclosure requirement.
if probale but the amount cannot be estimated relibly what we can do
if, we recorded some amount of contingent liability as loss in previous year, n the actual liability is less than the recorded, what should we do?
a contingent liability ia a liability which may or may not occur.actually it is an expense in the income statement and a liability in the balance sheet