Question

On December 20, Year 6, an uninsured property damage loss was caused by a company car being driven on company business by a company sales agent. The company did not become aware of the loss until January 25, Year 7, but the amount of the loss was reasonably estimable before the financial statements were issued. The company’s December 31, Year 6, financial statements should report an estimated loss as_____________

Answer 1

an accrual.

Step-by-step explanation:

Accruals are a type of liability. They are expenses that have been incurred by the company, but have not been paid yet.

The accident resulted in a loss contingency and since it was probable and could be reasonably estimated, it must be included in the balance sheet. Balance sheets must be adjusted when certain relevant events are known after the year ended, but before the balance sheet is presented.