Contingent liability
Financial Accounting glossary · Assets: Cash, Receivables, Inventory, PP&E & Intangibles
Definition
Possible obligation whose existence depends on an uncertain future event.
Contingent liability in plain English
A contingent liability is a bill you might have to pay someday — but only if something uncertain actually happens. Think of a friend who lends you their bike and says, "If I crash it, you owe me for repairs": you don't owe anything yet, and maybe you never will, but the possibility is real and hanging over you. Companies track these (like a lawsuit they could lose) because investors deserve to know about money that could suddenly become owed. The key idea is uncertainty: it becomes a real liability only once the triggering event occurs.
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