FY 2018 YEAREND TRAINING Schedule R Contingent Liabilities

FY 2018 YEAR-END TRAINING Schedule R – Contingent Liabilities Presenter: Mary Yip Auditor-Controller’s Office 1 2018 Year End Training – Chapter 13

Schedule R – Contingent Liabilities Transacti on Type Recogniti on Criteria • A contingent liability is a potential liability. It depends on a future event occurring or not occurring. • Examples: guarantees, pending lawsuits, unsettled purchase orders, uncompleted contracts • If the contingency is both probable and the amount can be estimated, then, the liability should be accrued by journal entry at fiscal year end. • If a contingent liability is only possible (not probable), or if the amount cannot be estimated, a journal entry is not required. However, the event should be disclosed in the footnote to the financial statement. • If a contingent liability is remote, then neither a journal entry nor a footnote is required. 2 2018 Year End Training – Chapter 13

Schedule R – Contingent Liabilities Scenario: The State of California has filed a lawsuit claim against the Example Department. The estimated claim amount is $500, 000 and the date the lawsuit is projected to be resolved is 8/16/18. The Department lawyers claim the State will succeed in the lawsuit at the time of resolution. 3 2018 Year End Training – Chapter 13

Schedule R – Contingent Liabilities 4 2018 Year End Training – Chapter 13

Schedule R – Accrual Journal Entry 5 2018 Year End Training – Chapter 13

Schedule R – Reversal Journal Entry 6 2018 Year End Training – Chapter 13

Schedule R – Contingent Liabilities Mail Schedule R and Supporting Documents to ACO Year-End Mail Stop #1050 Questions? Submit them by email to acoyearend@rivco. org 7 2018 Year End Training – Chapter 13