Which of the following is the proper treatment for a liability that exists, but the exact amount of which is not known?
A)The liability should be ignored.
B)The liability should be treated as a contingent liability.
C)The liability should be reported in the notes to the financial statements.
D)The amount of the liability should be estimated and recorded.

Question

Quizplus · Accepted Answer

The liability should be estimated and recorded because it is recognized that the liability exists, even though the exact amount is not known. This is in accordance with the accounting principle of conservatism, which requires that expenses and liabilities should be recognized as soon as possible when there is uncertainty about the outcome.

Which of the Following Is the Proper Treatment for a Liability