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1. What Is a Contingent Liability

question 27

Essay

1. What is a contingent liability?
2. When must a contingent liability be recorded through a journal entry ?
3. When should a contingent liability be disclosed in the footnotes to the financial statements ?
4. When is disclosure of a contingent liability not required?


Definitions:

Net Cash Flows

is the total amount of money being transferred into and out of a business, indicating its financial health.

Initial Cost

The purchase price of a fixed asset plus all costs to obtain and ready it for use.

Cash Payback Method

A capital budgeting technique that calculates the time required to recoup the cost of an investment, based on the cash inflows generated by the investment.

Net Cash Inflows

The difference between all cash received and all cash payments over a period, reflecting the net change in cash position.

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