(Renumbered: 04/2021)

(Revised and renumbered from 8751)


A contingent liability is defined as an obligation relating to a past transaction or event that may be payable in the future.  It is a potential liability that may or may not become an actual liability (e.g., audit exception, pending litigation).

The distinction between a real liability and a contingent liability depends on the certainty of the payment to be made. A real liability exists when it is probable that the payment will be made. A contingent liability exists when it is only possible that the payment will be made.  A contingent liability is recorded if the contingency is likely and the amount of the liability can be reasonably estimated.

Real liabilities payable from an existing appropriation must be recognized at year-end even though the amount may be estimated in whole or part. Real liabilities not properly payable from an existing appropriation will be reported as payable from a future appropriation.

State agencies/departments are required to prepare a statement of all contingent liabilities and liabilities payable from a future appropriation at year-end. Use Year-End Report No. 22, Statement of Contingent Liabilities to report these liabilities. See SAM section 7980.  Agencies/departments will establish appropriate memorandum accounts as a record of these liabilities.


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