Ask Joey ™ a Question

What is the journal entry to record a gain contingency in the financial statements?

There is no journal entry to record a gain contingency because a gain contingency is not recorded in the financial statements. The main reason for this is because it prevents companies from recording gain contingencies to temporarily inflate the financial results.

Gain contingencies should be disclosed in the notes to the financial statements if it not misleading. Otherwise, potential gains should only be recorded to the financial statements when the activity can be recognized (i.e. the company wins the lawsuit).

You might also be interested in...

  • What is a gain contingency, and do they need to recorded on the balance sheet and/or in the notes to the financial statements?

    Gain contingencies are suspected to result in a positive outcome. U.S. GAAP takes a conservative approach to recording gain contingencies.  Gain contingencies will never be recorded (accrued), however, if they are reasonably likely to occur, they should be reported in the notes to the financial statements. Think of this approach as a way to avoid […]

  • What is included in the discontinued operations gain or loss on the income statement?

    For an item to be classified as a discontinued operation, the event needs must meet the definition of a strategic shift. When a component is designated as discontinued, there are three different factors that must be included in the overall net loss on the discontinued entity: