Question

Which of the following represent the correct accounting treatment for loss contingencies that do not meet the criteria for recording a liability but are at least reasonably possible?

1) Disclose the nature of the contingency in the financial statements.
2) Recognize a liability and record the loss in the financial statements.
3) Ignore the contingency and do not disclose it in the financial statements.
4) Recognize a liability but do not record the loss in the financial statements.

Answer 1

The correct accounting treatment is to disclose the nature of the contingency in the financial statements.

Step-by-step explanation:

The correct accounting treatment for loss contingencies that do not meet the criteria for recording a liability but are at least reasonably possible is to disclose the nature of the contingency in the financial statements. This means that the company should provide information about the contingency in the footnotes or other relevant sections of the financial statements.