Q:

What is contingent liability?

A:

A contingent liability is a liability that a business might be subjected to by an entity based on the outcome of an unknown future event like a court case. It can be regarded as a hypothetical liability that turns into an actual liability when that situation or event occurs.

The contingent liability is different for different types of professions and businesses. Examples of contingent liabilities include outstanding lawsuits, legal liabilities, credit guaranties, acts of employees, incomplete contracts, unfilled purchased orders, third-party indemnities, unsettled disputes, liquidated damages, unliquidated damages, product warranty, sales tax disputed, income tax disputed, destruction by flood and financial guarantees given.

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