Question

17. If a contingent liability is both and it must be booked as a liability, otherwise a disclosure in the financial statement notes is sufficient. in a 18. Drawings in a sole proprietorship or partnership are similar to corporation.

Answer 1

17. If a contingent liability is both Probable and Can be estimated , it must be booked as a liability, otherwise a disclosure in the financial statement notes is sufficient.

Explanation: : A contingent liability is a liability or a potential loss that may occur in the future depending on the outcome of a specific event. So if the amount of the loss cannot be estimated (i.e. the amount might turn out to be different when the actual loss is incured), recording it in the liability can result in incorrect accounting and wrong financial statement. So in the case where the amount cannot be estimated, disclosing it in the financial statement notes (footnotes) is sufficient.

18. Drawings in a sole propritorship or partnership are similar to Salary in a corporation.

Sole proprietorship or partnership where the owner or owners own the whole business can draw in compensation versus paying themselves salary. In a corporation where the shareholders own the business owners cannot take drawings and are allowed to take money as salary or dividends (If the shareholder is not active).