Accounting for Contingencies

This lesson discusses how to account for contingencies, uncertain future gains and losses. A basic understanding of financial statements and the essential ideas underlying accrual accounting is helpful before undertaking this lesson.

Learning Outcomes

On completion of the lesson, the student will be able to:

1. State the accounting standards definition of "contingency."
2. Explain when a company must accrue a contingency under the rules in Part 450 of the Accounting Standards Codification.
3. Describe what disclosure a company must make in its financial statements concerning the contingency under the rules in Part 450 of the Accounting Standards Codification.
4. Discuss the importance of determining whether a contingency is a contingent gain or a contingent loss.
5. Explain the significance of timing issues under the rules for accounting for contingencies.