Because you are an accounting student, one of your business major friends asks you to explain to him why the accounting profession records contingent liabilities only when their occurrence is probable but records deferred income tax assets as long as it is more likely than not that a future benefit...

You may find it difficult to answer your friends perceptive question FASB Statement No 5 that establ ...

Because you are an accounting student, one of your business major friends asks you to explain to

Question:

Because you are an accounting student, one of your business major friends asks you to explain to him why the accounting profession records only when their occurrence is probable but records deferred income tax assets as long as it is more likely than not that a future benefit will be realized from the deferral. He’s confused by the probability terms used to record these items and wonders why the recognition of assets seems less conservative than the recognition of liabilities. How would you answer your friend?

Contingent liabilities
A contingent liability is an obligation of business related to an uncertain future event. The business must record it in its financial statements if the amount can be reliably estimated and it is probable that amount will be paid by business as a...