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- 2016-4-16
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Here's another way to look at it.
Possible (not accrued): A worker is seriously injured at the plant. The company has covered the worker's medical expense but the company is concerned that it may get sued for $1MM. No legal action has been threatened thus far. The possible legal action may rise to a contingency that should be disclosed in the footnotes but not accrued on the balance sheet,
Probable (accrued): Assume same facts as above, except the worker has initiated legal action and the company's legal counsel advises that the company is probably liable. Counsel further estimates that the likely settlement is $250k. This amount is accrued on the balance sheet because payment is probable.
See the distinction?
- Robert |
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