Final answer:
In accounting, uncertainties in loss contingencies are handled using a materiality threshold, which helps determine if a potential loss should be disclosed or recognized based on its significance to the company's financial situation. Option B is correct.
Step-by-step explanation:
One of the primary approaches in dealing with uncertainties in loss contingencies uses a materiality threshold. This means that when assessing a potential liability or loss, accountants and financial professionals consider whether the amount in question is material relative to the company's financial position or results of operations.
If the contingency is likely to be immaterial, it may not need to be disclosed or recognized in the financial statements. If, on the other hand, it meets the threshold of materiality, it must be disclosed and possibly accounted for as a liability.
For example, if a company is facing a lawsuit for $5,000 and the company's annual revenues are $1 million, the potential loss might be considered immaterial. Conversely, if the lawsuit is for $500,000, this would likely surpass the materiality threshold and require disclosure.