How does a contingent liability differ from an estimate liability?
submitted by Viola Solo

Jenky

A contingent liability depends on some future event that isn't certain. Let's say your company is being sued. You want to set some money aside for that, in case you lose. It's one possibility, so it's "contingent."

In the case of a lawsuit that you might lose, you'd record the amount you might lose. That's a liability.

It's David

A contingent liability is like a "maybe" expense. You only put it on the books if it's possible it might happen and you can guess how much it will cost you.

An estimated liability is more like an educated guess about something you know will happen, but you aren't sure what it will cost.

That make sense? Contingent means you don't know if it will happen at all. So a contingent liability is how much you'd spend IF the a certain cost happened. An estimated liability is something you KNOW will happen, but you don't have the exact cost yet.

For a simple example, let's say you aren't sure if a big piece of equipment needs to be replaced or not. You could consider that a contingent liability, because it MIGHT happen. You set some money aside in case it does.

You've got a work truck in the shop and you know it will need some work. You set aside money because YOU KNOW it will cost you. You just have to estimate, because you don't know what the actual damage is yet.