[amill411]

Why are product liability losses considered contingent liabilities?

[Just Looking]

Contingent liabilities are liabilities they may or may not occur.

Under GAAP, if it is probable that customers will be making claims under the warranty and the amount can be estimated, you are required to make an entry debiting warranty expense and crediting warranty (or product) liability at the time of the sale. The point is to match expenses with sales. The claims haven't actually been made yet, but it is likely they will be.

At the time an actual loss occurs, the contingent liability is debited.