Only contingencies that are probable and can be estimated are recorded as a liability and an expense.

Question

Quizplus · Accepted Answer

This is the principle of accounting known as the "probable and estimable" rule for recording contingencies. Only when a contingency is likely to occur and its financial impact can be estimated with reasonable accuracy is it recorded as a liability on the balance sheet and an expense on the income statement.

Only Contingencies That Are Probable and Can Be Estimated Are