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Liability
 
What is the difference between a contingent liability and an estimated liability?
 
A contingent liability is a potential liability (and a potential loss). It is dependent upon a future event occurring or not occurring. For instance, if someone files a lawsuit against Jay Corp, Jay Corp will have a contingent liability. The lawsuit liability is dependent upon Jay Corp losing the lawsuit. (Some lawsuits are nuisance suits and will not cause a loss and liability.) When a contingent liability and loss are probable and the amount can be estimated, an estimated amount will be recorded as a liability.
Some liabilities are not contingent liabilities but are estimated liabilities. For example, the electricity consumed, property taxes, worker compensation insurance premiums, repairs, etc. are absolutely owed because the services or goods were delivered. There is nothing contingent about these. However, the precise amounts may not be known at the time that the financial statements are prepared. Therefore, these liabilities had to be recorded by using estimated amounts. I suspect that many of the accrual-type adjusting entries involve estimated liabilities.
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