Block Out Footnote Settlement For Free

The key is to ensure that the financial statements are not misleading. At a minimum, disclose the nature of the claims asserted and amount of damages sought. If the litigation is in its early stages, it may be appropriate to state that an estimate of reasonably possible loss cannot be made.

Contingent assets are not recognised, but they are disclosed when it is more likely than not that an inflow of benefits will occur. However, when the inflow of benefits is virtually certain an asset is recognised in the statement of financial position, because that asset is no longer considered to be contingent.

There is no journal entry to record a gain contingency because a gain contingency is not recorded in the financial statements. The main reason for this is because it prevents companies from recording gain contingencies to temporarily inflate the financial results.

Contingent assets are assets that are likely to materialize if certain events arise. These assets are only recorded in financial statements' footnotes as their value cannot be reasonably estimated.

Contingent liabilities are recorded if the contingency is likely and the amount of the liability can be reasonably estimated. The liability may be disclosed in a footnote on the financial statements unless both conditions are not met.

A contingency that might result in a gain usually should not be reflected in the financial statements because to do so might be to recognize revenue before its realization. A realized gain is one where cash (or other assets, such as claims to cash) has been received without expectation of repayment.

Gain contingencies should be disclosed in the notes to the financial statements if it not misleading.

Be sure to record the transaction in your client's account ledger, then deposit the payment in your firm's operating account. Write any other checks to your client and third parties as required by the settlement statement. Finally, check for a zero balance.