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Contingent liabilities require a credit to the accrued liability account and a debit to an expense account. Once the obligation is realized, the balance sheet's liability account is debited and the cash account is credited. Also, an entry is made in the associated expense of the income statement.

What Are Footnotes? Pick up any financial report and you'll always find references to the footnotes of the financial statements. The footnotes describe in detail the practices and reporting policies of the company's accounting methods and disclose additional information that can't be shown in the statements themselves.

It is important to disclose certain contingencies, even those that are not recognized, so that financial statement users can understand an entity's risks and how they could potentially affect the financial statements.

Comprehensive footnote disclosures, which are found at the end of reviewed and audited financial statements, provide valuable insight into a company's operations. Unfortunately, most people don't take the time to read footnotes in full, causing them to overlook key details.

When companies file their annual financial statements, they often add footnotes beneath the statement. Footnotes to the financial statements refer to extra information that a company supplies about its finances when filing a financial statement.

Examples of Financial Statement Footnotes Accounting policies. Describe significant principles followed. Accounting changes. ... Related parties. ... Contingencies and commitments. ... Risks and uncertainties. ... Nonmonetary transactions. ... Subsequent events. ... Business combinations.

Hence, the contingent liabilities are shown as a footnote or explanatory notes in the balance sheet of a firm as per Convention of full disclosure.