accounting Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...

, contingent liabilities are liabilities that may be incurred by an entity depending on the outcome of an uncertain future event such as the outcome of a pending

lawsuit A lawsuit is a proceeding by one or more parties (the plaintiff or claimant) against one or more parties (the defendant) in a civil court of law. The archaic term "suit in law" is found in only a small number of laws still in effect today ...

. These liabilities are not recorded in a company's accounts and shown in the

balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...

when both probable and reasonably estimable as 'contingency' or 'worst case' financial outcome. A footnote to the balance sheet may describe the nature and extent of the contingent liabilities. The likelihood of loss is described as probable, reasonably possible, or remote. The ability to estimate a loss is described as known, reasonably estimable, or not reasonably estimable. It may or may not occur.

Classification

According to

International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution funded by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of las ...

's ''Government Finance Statistics Manual'', contingent liabilities shall be classified as: * Explicit contingent liabilities ** Guarantees *** One-off guarantees **** Loan and other debt instrument guarantees (publicly guaranteed debt) **** Other one-off guarantees ** Other explicit contingent liabilities * Implicit contingent liabilities ** Net implicit obligations for future social security benefits ** Other implicit contingent liabilities

Examples

* Outstanding lawsuits * Claims against the company not acknowledged as debts *

Legal liability In law, liable means "responsible or answerable in law; legally obligated". Legal liability concerns both Civil law (common law), civil law and criminal law and can arise from various areas of law, such as contracts, torts, taxes, or fines give ...

* Liquidated damages *

Tort A tort is a civil wrong, other than breach of contract, that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with cri ...

* Unliquidated damages * Destruction by Flood * product warranty * Income Tax Disputed * Sales Tax Disputed * Financial guarantees given

References

{{DEFAULTSORT:Contingent Liability Liability (financial accounting)