Answered: Which of the following statements is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Which of the following statements is false?
a. A contingent liability should be disclosed in the notes to the financial statements if there
is a reasonable possibility that a loss (or expense) will occur.
b. All contingent liabilities should be reported as liabilities on the financial statements,
even those that are unlikely to occur.
c. A contingent liability is a potential obligation that depends on the future outcome of past
events.
d. A contingent liability should be accrued if the loss is probable and the amount of the
loss can be reasonably estimated.

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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