Concept explainers
Provide an example for known liability, estimated liability, and
Explanation of Solution
Liabilities: Liabilities are debt and obligations of a business. These are the claims against the resources that a business owes to outsiders of the company. Liabilities may be short-term or long-term depending upon the time duration in which it is paid back to the creditors.
Known liability: The estimated amount of a transaction which is occurred in the past is called as known liability.
Example: Accounts payable
Estimated liability: The obligation that a business needs to pay to the employees, or customer, or government is called as estimated liability.
Example: Estimated warranty expense
Contingent liability: Contingent liability is a potential liability of a company that depends on a future event. It is the result of an uncertain event. For paying a contingent liability, some event should happen in the future.
Example: Lawsuit
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Chapter 9 Solutions
Financial Accounting (5th Edition) (What's New in Accounting)
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