Asked by: Valery Porter
personal finance options

What is contingency in finance?

Last Updated: 9th May, 2020

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A financing contingency is a condition that allows the buyer to walk away from a transaction if it is unable to secure financing. Sometimes, the financing contingency may refer to specific terms that need to be in place rather than whether the financing can or cannot be obtained.

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In this way, what is the meaning of contingency in accounting?

A contingency arises when there is a situation for which the outcome is uncertain, and which should be resolved in the future, possibly creating a loss. The accounting for a contingency is essentially to recognize only those losses that are probable and for which a loss amount can be reasonably estimated.

Also Know, how long is a financing contingency? A contingency period typically lasts anywhere between 30 and 60 days. If the buyer isn't able to get a mortgage within the agreed time, then the seller can choose to cancel the contract and find another buyer. This timeframe may be important if you encounter a delay in getting financed.

Simply so, what is an example of a contingency?

noun. Contingency means something that could happen or come up depending on other occurrences. An example of a contingency is the unexpected need for a bandage on a hike. The definition of a contingency is something that depends on something else in order to happen.

What does contingencies mean in business?

A contingency is a potential negative event that may occur in the future, such as an economic recession, natural disaster, fraudulent activity, or a terrorist attack. Contingencies can be prepared for, but often the nature and scope of such negative events are unknowable in advance.

Related Question Answers

Felisbela Tebaldi

Professional

What is a contingency plan example?

Contingency plan. Contingency plans are often devised by governments or businesses. For example, suppose many employees of a company are traveling together on an aircraft which crashes, killing all aboard. The company could be severely strained or even ruined by such a loss.

Ironim Muhammad

Professional

Whats does contingent mean?

Contingent means the seller of the home has accepted an offer—one that comes with contingencies, or a condition that must be met for the sale to go through. Contingent—Continue to Show: The seller has accepted an offer which hinges on one or several contingencies.

Xiaochun Fabuel

Professional

How do you find contingency?

Dividing the total overruns by the total associated revenue gives you the percentage to use for your contingency reserve. Use this percentage to calculate the amount you need to reserve for current and future projects. For most companies, this percentage will be 3 percent to 5 percent of the project's budget.

Yazid Ibarrez

Explainer

What is budget contingency?

A contingency budget is money set aside to cover unexpected costs during the construction process. This money is on reserve and not allocated to one area of the work, and simply “insurance” against other costs.

Oltita Manzana

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What is contingency pay?

Instead, a company or business person may arrange a contingent payment, which means the payment depends on a particular event or level of performance. For example, lawyers often set contingency payments that only require clients to pay if they win their cases.

Jano Monell

Explainer

What does a contingency plan include?

A good contingency plan should include any event that might disrupt operations. Here are some specific areas to include in the plan: Natural disasters, such as hurricanes, fires, and earthquakes. Crises, such as threatening employees or customers, on-the-job injuries, and worksite accidents.

Hubert Howeling

Pundit

What are the two basic requirements for the accrual of a loss contingency?

The two basic requirements for the accrual of a loss contingency are supported by several basic concepts of accounting. Three of these concepts are: periodicity (time periods), measurement, and objectivity.

Rihab Keidel

Pundit

What will a contingency note contain?

Contingencies are potential liabilities that might result because of a past event. The likelihood of loss or the actual amount of the loss is still uncertain. Reasonably possible losses are only described in the notes and remote contingencies can be omitted entirely from financial statements.

Iluminada Alutiz

Pundit

What is the purpose of contingency?

The purpose of a contingency plan is to allow an organization to return to its daily operations as quickly as possible after an unforeseen event. The contingency plan protects resources, minimizes customer inconvenience and identifies key staff, assigning specific responsibilities in the context of the recovery.

Lizzie Salingue

Pundit

What is the concept of contingency?

Definition of contingency. 1 : a contingent event or condition: such as. a : an event (such as an emergency) that may but is not certain to occur trying to provide for every contingency. b : something liable to happen as an adjunct to or result of something else the contingencies of war.

Dulcenombre Bernis

Pundit

How do you use contingency?

A contingency is an event you can't be sure will happen or not. The noun contingency describes something that might or might not happen. We use it to describe an event or situation that is a possible outcome but one that's impossible to predict with certainty.

Brayan Caruncho

Teacher

What are the different types of contingency plans?

9 Examples of Contingency Planning
  • Disaster. A school near the sea plans for a tsunami.
  • Environment. A city plans what it will do if air quality reaches dangerous levels.
  • Infrastructure & Facilities.
  • Partners.
  • Talent.
  • Markets.
  • Political.
  • Trade.

Ying Rivman

Teacher

What are the steps in contingency planning?

NIST's 7-Step Contingency Planning Process
  • Develop the contingency planning policy statement.
  • Conduct the business impact analysis (BIA).
  • Identify preventive controls.
  • Create contingency strategies.
  • Develop an information system contingency plan.
  • Ensure plan testing, training, and exercises.
  • Ensure plan maintenance.

Xuan Barado

Teacher

What are contingent truths?

Necessary Truth. A contingent truth is a true proposition that could have been false; a contingent falsehood is a false proposition that could have been true. This is sometimes expressed by saying that a contingent proposition is one that is true in some possible worlds and not in others.

Xiker Mollon

Teacher

What are the key concepts of contingency planning?

Contingency plans are an essential part of risk management. They help to ensure that you've always got a backup option when things go wrong, or when the unexpected happens.

Then, include the following points for each threat:
  • Scenarios.
  • Triggers.
  • Response overview.
  • People to inform.
  • Key responsibilities.
  • Timeline.

Gissel Eichleiter

Reviewer

What is contingency day?

The National Contingency Day would allow any examinations to be postponed in the event of an incident to a later date to allow all students a fair and equal chance. The National Contingency Day is 24 June 2020. All candidates must be available to sit examinations on that date.

Josefino Bouma

Reviewer

What is contingency sum?

A contingency sum is an amount of money, usually expressed as a percentage, included in the project budget to allow for the unknown or unresolved aspects of a design. It is usual for the initial allowance to be as much as 25% to 30%.

Manuel Matei

Reviewer

Should I accept an offer with a contingency?

In a situation with a buyer's sale contingency, insist on a so-called “kick-out” clause. This means that you retain the right to market your property, and if you get a better offer, you can accept it. If the current buyer does not remove the contingency, you can terminate the agreement, return the buyer's deposit.

Willians Uccellani

Reviewer

What happens after loan contingency?

When a seller accepts an offer, the earnest money check is held in escrow or sometimes by the title company or real estate agent and is eventually applied to the down payment for the loan. Financing contingencies typically state that the buyer's earnest money will be returned if the buyer cannot get financing.