What do you mean by contingent liability? Briefly explain it.

Contingent Liability represents a potential obligation that could be created depending on the outcome of an event. For example if a supplier of a business files a legal suit, it will not be treated as a liability because no obligation is created immediately. If the verdict of the case is given in favour of the supplier then only the obligation is created. Till that point it is treated as a contingent liability. Please note that contingent liability is not recorded in books of account, but disclosed in the footnote in the financial statements. For example, if you took an educational loan of ₹10,00,000 from your bank to fund your child's higher studies, that amount could well become a contingent liability if your child fails to make monthly payments after getting a job. You might have to pay the loan amount because you have taken the loan from your bank.