What Is a Contingency in Accounting

A contingency arises when there is a situation for which the outcome is uncertain, and which should be resolved in the future, possibly creating a loss. The accounting for a contingency is essentially to recognize only those losses that are probable and for which a loss amount can be reasonably estimated.

What is contingency cost in accounting?

Contingency “refers to costs that will probably occur based on past experience, but with some uncertainty regarding the amount. … The cost contingency which is included in a cost estimate, bid, or budget may be classified as to its general purpose, that is what it is intended to provide for.

What are examples of contingent liabilities?

• Lawsuit.
• Product Warranty.
• Pending Investigation or Pending Cases.
• Bank Guarantee.
• Lawsuit for theft of Patent/know-how.
• Change of Government Policies.
• Change in Foreign Exchange.
• Liquidated Damages.