Question

Contingent liability is shown in the balance sheet because of __________.

• A. Convention of consistency
• B. Convention of materiality
• C. Convention of disclosure
• D. Convention of adventure

Answer 1

Answer: (C)

Convention of disclosure

A contingent liability is a potential liability that may occur, depending on the outcome of an uncertain future event. A contingent liability is recorded in the accounting records if the contingency is probable estimated. The principle of full disclosure requires that all material and relevant facts concerning financial performance of an enterprise must be fully and completely disclosed in the financial statements and their accompanying footnotes. Hence, contingent liability is recorded in balance sheet as footnote.