Probable and estimable

Definition

Probable and estimable refer to the criteria used to recognize contingent liabilities in financial accounting. A liability is recognized if it is likely to occur (probable) and the amount can be reasonably estimated (estimable).

5 Must Know Facts For Your Next Test

1. A contingent liability must be both probable and estimable to be recorded on the balance sheet.
2. If a contingent liability is only possible or cannot be estimated, it is disclosed in the notes but not recorded.
3. The assessment of whether a liability is probable involves professional judgment based on available evidence.
4. Estimating the amount of a contingent liability often requires historical data, expert opinions, or statistical models.
5. Examples of contingent liabilities include pending lawsuits, warranty obligations, and environmental cleanup costs.

Related terms

Contingent Liability:

A potential obligation that may become an actual liability depending on future events.

Balance Sheet:

A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.

Disclosure Notes: Additional information provided in financial statements to give context to figures presented in the main statements.