Do you accrue for liquidating damages on the balance sheet?
Depending on the terms of the contract, a company may have to pay liquidating damages to the other party if the contract is breeched.
Liquidating damages are an example of a potential loss contingency, and the company should only accrue the liquidating damages on the balance if it is probable to occur and can be reasonably estimated. Use the guide below to determine whether or not liquidated damages should be accrued for. In an M&A transaction, the seller should make the buyer aware of any contracts that have a clause on liquidating damages.
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