A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become an actual liability, and the amount could be reasonably estimated. If the accountant decided to report it on the balance sheet, this could be considered a violation of generally accepted accounting principles.

Question

Quizplus · Accepted Answer

If it is probable that a liability will become actual and the amount can be reasonably estimated, then it should be recognized and disclosed in the financial statements. This is in accordance with generally accepted accounting principles. Therefore, reporting it on the balance sheet would not be a violation of GAAP.

A Certain Contingent Liability Was Evaluated at Year-End; the Company