A Contingent Liability

question 99

Multiple Choice

A contingent liability:

• A) Is a liability of a specific amount.
• B) Is a potential obligation that depends on a future event arising out of a past transaction.
• C) Is an obligation not requiring immediate payment.
• D) Is an obligation arising from the purchase of goods or services on credit.
• E) None of these answers is correct.

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Definitions:

Permanent Accounts

Balance sheet accounts that carry their ending balances into the next accounting period, including assets, liabilities, and equity accounts.

Closing Entry Process

The procedure at the end of an accounting period to prepare the accounts for the next period by clearing out revenues and expenses into the Retained Earnings account.

Temporary Accounts

Accounts used to collect information during a single accounting period, which are then transferred to permanent accounts at the end of the period.