ACCT 1A Lecture Notes - Lecture 18: Contingent Liability, Working Capital, Financial Statement

• School: Irvine Valley College
• Department: Accounting
• Course: ACCT 1A
• Professor: urell

Document Summary

Each of the liabilities that we have discussed is reported on the statement of financial position with a specific monetary value, because each involves the probable future sacrifice of economic benefits. A contingent liability is a possible liability that is created as a result of a past event, and which may or may not become a recorded liability, depending on future events. Whether a situation produces a provision or a contingent liability relates to two factors: the probability of the future economic sacrifice and the ability of management to estimate the amount of the liability reliably. Contingent liability examples: lawsuits, environmental problems and tax disputes. The following offers scenarios of past events that result in a present obligation, or a possible obligation that depend on the occurrence or not of specific future events. Commitments reflect contractual agreements to enter into transactions with other parties.