A guide to treat contingent liability

As a business owner, you may have an adverse outcome in a tax court decision that will have an impact on your business. This event is known as a contingent liability. A contingent liability is a potential liability that may exist in the future depending on the outcome of a past event. Other examples include a lawsuit or notes receivable discounted.

The accounting rule, if this event is probable, is that you will record the liability on the balance sheet and record the loss to the income statement.

Lastly, footnote disclosure is required of the circumstances for possible losses.

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Disclaimer: This blog is for information purposes only and is not intended to provide investing, accounting, tax or legal advice and should not be relied upon.