In the accounting records of a defendant, lawsuits:
A) Are estimated liabilities.
B) Should always be recorded.
C) Should always be disclosed.
D) Should be recorded if payment for damages is probable and the amount can be reasonably estimated.
E) Should never be recorded.

Question

Quizplus · Accepted Answer

Lawsuits should only be recorded in the accounting records of a defendant if payment for damages is probable and the amount can be reasonably estimated. This is based on the accrual accounting principle, which requires that all expenses and liabilities be recorded when they are probable and reasonably estimable. If the outcome of the lawsuit is uncertain or the amount of damages cannot be reasonably estimated, then the lawsuit should only be disclosed in the notes to the financial statements.

In the Accounting Records of a Defendant, Lawsuits