contingent liability



Hypothetical liability which depends on a possible (but hardly likely) event or situation to occur before becoming an actual liability. Contingent liabilities are different for every type of business and profession, and management makes provision for them by setting aside appropriate funds as reserves. Examples include acts of employees, credit guaranties, incomplete contracts, pending court cases, third party indemnities, unfilled purchase orders, unsettled disputes, etc. Under corporate-legislation, contingent liabilities must be disclosed in a balance sheet via an explanatory note (footnote).

Use this term in a sentence

  • You need to make sure that you know all of the contingent liability to any new project that you are about to take on.

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  • The contingent liability was a ramification or implication on the bifurcating tree of possibilities that needed to prepared for today.

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  • Drivers for the company are taught to operate inside very strict and rigid guidelines, in order to keep the possibility, however remote, of contingent liability down, as the company cannot afford expensive litigation.

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