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Contingent liability is not an actual liability but an anticipated liability (probable liability which may or may not become payable). It depends upon the happening of certain events or the performance of certain acts. An element of uncertainty is always attached. A contingent liability, thus, may or may not become a sure liability.

The term 鈥減robable鈥� refers to the type of contingent liability that is recorded only when the loss is expected to occur, and one can make a fair assessment of the amount of the loss. Here, 鈥減robable鈥� means that a future event is expected to occur. Hence, it is mandatory to explain the liability in the footnotes that follow financial statements.

The term "reasonably possible" refers to the type of contingent liability in which an event is less likely to occur but is still possible. Here, contingent liabilities are recognized only when the liability is reasonably possible to evaluate and not probable. Therefore, the makers of the financial statements should show the existence of contingent liabilities in the notes following such statements.

The term "remote" refers to a type of contingent liability that is not disclosed if the probability of its occurrence is remote. It means that the contingencies are neither probable nor 鈥渞easonably possible.鈥� Thus, they are recorded as a financial footnote.