Potential legal claims debt guarantees represent reasonably possible contingent liabilities.
A note to the balance sheet is used to display a contingent liability. Due to the full disclosure norm, contingent liabilities, which may or may not materialize in the near future, are disclosed as a footnote.
Examples of Contingent Liabilities: a company's assurances and denials of assurances. A corporation may provide a guarantee to another individual on behalf of a third party in the form of a loan to a subsidiary or a promise that another company will fulfill a contractual commitment.
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