Contingent asset

A contingent asset is an expectation of future income that does not depend directly on a company. Its compliance or not will depend on third parties, so it is within uncertainty.

When speaking of contingent assets in economic matters, it refers to the expectation about events that are possible to happen. That is, they are framed within uncertainty.

That is, there are assets that have not yet succeeded or materialized, but that a company has and integrates into its financial statements.

The existence of this type of asset is usually related to events or events in the past. Therefore, we speak of stable expectations for a period of time until the occurrence, or not, of the expected event.

In this sense, these economic situations are linked to areas such as insurance brokerage or the field of compensation for multiple factors.

Likewise, claims to third parties that are finely compensated and benefit the company are identified as contingent assets.

Accounting for a contingent asset

Formally, the accounting does not conceive that contingent assets are included in the accounting books. The sense of this is that it would give a not very faithful image of the company, since the expectation of future income could not be fulfilled.

It would be at the time of fulfillment of the contingency fact, when it would be correct to make the entry as it is finally considered as a real event. In other words, it is a confirmed and verifiable gain.

Said note will consider the entry of compensation as income and will become part of the asset in the company's balance sheet in said period.

Any time prior to said confirmation may be included in the accounting information as an indication or annotation, without affecting the statements numerically or accounting.

Contingent asset example

There are a lot of examples in day-to-day economics regarding contingent assets. The most recurrent are identified with prospects of collections of a certain amount of money subject to a judicial decision.

Proof of this are the compensation received when winning a lawsuit or in the collection of insurance for various contingencies.

Interestingly, for the other party, this fact would alternatively be considered as a contingent liability.