Final answer:
Contingent liabilities are recorded when both probable and estimable; otherwise, they are disclosed in the financial statement notes depending on how likely they are to occur and if they can be estimated.
Step-by-step explanation:
Contingent liabilities are potential financial obligations that may or may not arise, depending on the outcome of a future event. They are recorded in financial statements when they are both probable and the amount can be reasonably estimated. If a contingent liability is considered remote, it is generally neither recorded nor disclosed. If the likelihood of the contingent liability is reasonably possible, it should be disclosed in the notes to the financial statements, but not recorded as a liability. Finally, if it is probable but cannot be estimated, it should also be disclosed in the notes to the financial statements. They are recorded or disclosed in the financial statement notes unless they are remote, meaning they are very unlikely to occur.
They are also disclosed if they are reasonably possible, meaning there is a chance they may occur but it is not probable. However, if a contingent liability is both probable and estimable, meaning it is likely to occur and the amount can be reasonably estimated, it should be recorded in the financial statements.