Business Glossary

potential liability that may exist in the future depending on the outcome of a past event. Examples are an adverse tax court decision, lawsuit, and notes receivable discounted. ootnote disclosure is required of the circumstances for possible losses. Note that an estimated liability can be booked only if there is a probable loss.

1. obligation of a person who signs a promissory note as an accommodation endorser , comaker , or guarantor , becoming liable for payment in the event the original borrower defaults.
2. financial obligation of a bank that is dependent on future events or actions of another party, such as a standing agreement to lend money if a borrower cannot obtain alternate financing. Included are standby letters of credit, commitments to make or purchase loans, and participations in acceptances, financial futures, and forward contracts. These are ordinarily reported as off-balance sheet items in a bank's call report .