Differentiate between contingent liabilities and liabilities

Liability is the amount owed to a creditor. Long term and short term liabilities are the types of liabilities.

Long term liabilities are expected to pay over the years or the time frame is more than a year. However, short term liabilities are expected to pay within a year.

A contingent liability is the liability which may or may not occur. That means the contingent liability will depend on future events.

Accounting

• Liability is accounted for immediately as you owe the obligation. Amount is recorded in books as accounts or notes payable.
• Contingent account is accounted for only when the obligation is probable and amount is estimated.

Requirements and standards

• Liabilities are recorded when actually realized.
• Contingent liabilities are recorded, when the loss is significant.

Differences

The major differences between contingent liabilities and liabilities are as follows −