 Contingent liabilities are not actual liabilities. They are potential liabilities that may become actual liabilities in the future based on the outcome of some future event. Some examples of contingent liabilities are shown on the slide. They include lawsuits, loan guarantees, which is a cosigner, and product liabilities, which specifically I mean product warranties. Contingent liabilities are classified into three groups based on the likelihood of probability that they will become actual liabilities. Those classifications are probable, possible, and remote. When the likelihood that a contingent liability will become an actual liability is probable, then we need to record the contingent liability as an actual liability. So we would make a journal entry debiting some expense or loss account, and crediting some liability account. Additionally, we would disclose the details of the contingent liability in the notes of the financial statements. When the likelihood that a contingent liability will become an actual liability is possible, then we need to disclose the details of the contingent liability in the notes to the financial statement only. We do not make a journal entry to record a liability. Finally, when the likelihood of a contingent liability becoming an actual liability is remote, then we don't record or disclose any information about it. We just ignore it.