A contingent liability is an amount that might have to be paid in the future, but there are still unresolved matters that make it only a possibility. Lawsuits and the threat of lawsuits are the most common contingent liabilities, but product warranties also fit into this category.Contingent liabilities must be listed on a company’s balance sheet if they are both probable and the amount can be estimated. If one of those factors is absent, the contingent liability doesn’t appear on the balance sheet, but is still discussed in the financial statement notes. A contingent liability that is remote is neither listed on the balance sheet nor discussed in the notes. For instance, Bob’s Construction has three different pending legal matters. The first is a lawsuit filed by a customer claiming damages for $500,000 due to faulty construction work by one of Bob’s subcontractors. The second is a lawsuit from a former employee claiming age discrimination. Bob’s attorneys feel that matter may have some validity, but the amount is uncertain. The final matter is a letter Bob received from a driver who claims a pebble from one of Bob’s trucks cracked his windshield. Bob’s accountants will record a contingent liability for the $500,000 lawsuit because it’s both probable and the amount can be estimated. The second matter won’t be entered into the books, but will be discussed in the financial statement notes. The third matter is remote and does not merit discussion in the financial statements.