Contingent Liabilities are expenses that may occur in the future. They do not have to be paid right away. Instead, they may be paid at some point in the future if a certain event occurs. For example, if your business is sued for something that happened in the past, then you may have a contingent liability for the court costs if you lose the case. If a business partner hasn’t paid you money that you are owed, you have a contingent liability until your partner pays up.A contingent liability is not the same as a possible future expense. For instance, if you plan to remodel your office in the future, it is not a contingent liability. A contingent liability is something that may or may not happen.Contingent liabilities can be difficult to estimate because their value changes over time. The amount of this type of liability can be different from year to year.Here are some examples of contingent liabilities:-1- Back taxes owed to the government2- Money owed to employees for unpaid overtime or vacation pay3- Money you owe to your business partner for something you bought from him or her4- Money you owe to customers who haven’t paid for their products yet5- Money you owe to suppliers for products you purchased from them6- Legal costs if your business is sued for something that happened in the pastIf your small business has a contingent liability, you must report it as a current liability on your balance sheet. You cannot wait to subtract it until a later date, such as when the liability is paid.For example, suppose you put down a deposit on office furniture and paid in full except for the sales tax. When you receive the invoice from the furniture store, you also receive a separate invoice for the sales tax. The invoice for the sales tax is a contingent liability.
