Introduction to Financial Accounting: Contingent Liabilities

These flashcards cover key vocabulary terms and concepts essential for understanding contingent liabilities in financial accounting.

Time Value of Money

Concept that money available now is worth more than the same amount in the future due to its potential earning capacity.

Contingent Liability

An existing condition involving uncertainty as to possible loss to an entity that will be resolved when future events occur or fail to occur.

Loss Contingency

Condition, situation, or set of circumstances where potential loss is uncertain and is resolved by future events.

Recognition Criteria

Conditions under which a company must record an expense and liability for a contingent liability.

Disclosure Criteria

Conditions under which a company must disclose a contingent liability in the footnotes of their financial statements.

Probable

Likelihood of having to pay that is highly likely to occur.

Reasonably Possible

Likelihood of having to pay that is more than remote but less than likely.

Remote

Likelihood of having to pay that is very unlikely to occur.

Estimable Contingent Liabilities

Contingent liabilities for which the amount can be reasonably estimated.

Non-estimable Contingent Liabilities

Contingent liabilities for which the amount cannot be reasonably estimated.

Accounting Treatment

Process of recording or disclosing a contingent liability based on likelihood and estimability.