Contingent liability journal entry

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This discussion clarifies how to account for contingent liabilities, explaining they are typically disclosed in the notes to the balance sheet rather than directly in the books. It also addresses the accounting impact of unrecorded accruals, highlighting that both estimated liabilities and expenditures should be recognised in the financial statements according to mercantile accounting principles, except for income.

AISHWARYA

AISHWARYA (Querist)
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07 May 2020 Dear All, Pl help for below two questions..

1. Kindly provide the journal entry for contingent liability. Can it be shown in balance sheet or by way of notes to accounts only ?

2. If accruals entries (income and expenses) are not shown in books will it have any accounting impact ?

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
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07 May 2020 Contingent liabilities are not shown books , but same to be mentioned foot note in balance sheet.

AISHWARYA

AISHWARYA (Querist)
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08 May 2020 Thanks for the response. Can you please answer to my second question also..

If accruals entries (income and expenses) are not shown in books will it have any accounting impact ?

Aashok Kumar Sharma online

Aashok Kumar Sharma

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08 May 2020 YES Contingent Liabilities (Which may or may not happen) needs to be explained in foot notes and all the accruals of liabilities needs to be given effect in Financial Statements. As per Accounting Standards all estimated liabilities and expenditures needs to be taken into accounting except for income.

AISHWARYA

AISHWARYA (Querist)
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09 May 2020 Thanks for the response.

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
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09 May 2020 In mercantile system of accounting you have to book income and expenses year in which actually accrued.

AISHWARYA

AISHWARYA (Querist)
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10 May 2020 Thanks for the response.

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