Question

a) What non-accounting factors are important before evaluating whether a pending lawsuit should be accrued as a liability and reflected in the financial statements?

b) What accounting factors should be considered in determining whether a pending lawsuit should be accrued as a liability and reflected in the financial statements?

350 word minimum please.

Answer 1

Answers:
a)Legal debts or obligations of a company that arise during the course of its business operations are liabilities. These liabilities are settled over time through the transfer of money, goods or services. Liabilities are separated into current liabilities, paid within one year, and noncurrent liabilities pay within one year or more. Aside from that liabilities are also categorized into liabilities, estimated liabilities and contingency liabilities.

b)A pending lawsuits fall under the contingent liability. A contingent liability is a liability where the outcome of a current situation is unknown, but will be resolved in future events. There are three categories to determent if a contingency liability needs to be disclosed, they include remote, reasonable possibility and probable. Remote is the slight possibility of an event occurring and does not need to be disclosed at all.

Thanks....