When should contingent liabilities be recorded in the accounts?

Contingent liabilities should be recorded in the accounts when it is probable that the liability will occur, and the amount can be reasonably estimated. This aligns with the guidance provided under accounting principles, which state that a contingency should be recognized when it is more than likely to happen, typically assessed at over 50% probability.

This approach ensures that the financial statements reflect not only the current obligations but also potential future liabilities that may impact an entity's financial position. By recognizing these liabilities when they are likely and measurable, businesses provide stakeholders with a more accurate picture of their financial health, promoting transparency and a better understanding of possible risks.

Recording contingent liabilities only when there is a 100% certainty of payment would not align with the principles of conservatism and may lead to understated liabilities, misleading users of the financial statements. Waiting until expenses are paid or revenue is recognized does not appropriately account for future obligations that need to be reflected in the financial statements at the time they are determined to be probable and estimable.