A non-operating or “other” reduction in net income resulting from a judgment against the company. It is shown in the accounting period when the amount is determined to be probable and the amount can be estimated. This means that the loss is likely to be shown earlier than the date that the payment is made. If the “loss” is only possible (not probable) it is disclosed in the notes to the financial statements rather than a reduction on the income statement and a liability on the balance sheet. If the “loss” is remote it is neither noted nor entered on the financial statements.
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For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
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