what is Contigental liability.

A contingent liability is a potential liability that may or may not become an actual liability. Whether the contingent liability becomes an actual liability depends on a future event occurring or not occurring.

A company's supplier is unable to obtain a bank loan. The company agrees to guarantee that the supplier's bank loan will be repaid. As a result of the company's guarantee, the bank makes the loan to the supplier. The company has a contingent liability. If the supplier makes the loan payments needed to pay off the loan, the company will have no liability. If the supplier fails to repay the bank, the company will have an actual liability.