When should contingent assets be recorded?

Contingent assets should be recorded when cash is received. In accounting, contingent assets are potential assets that may arise depending on the outcome of a future event, such as a legal settlement or an insurance claim. However, accounting standards require a conservative approach to recognizing contingent assets. Until there is certainty—typically marked by the actual receipt of cash—those assets are not recognized in the financial statements. The rationale behind this is to avoid inflating the financial position of a company with uncertain gains, therefore ensuring the financial statements fairly present the company's actual assets.

The other options suggest recognizing contingent assets at earlier stages, like estimates or when liabilities are identified, but these don’t align with the conservative accounting principles that govern contingent asset recognition.