Contingent liabilities are potential obligations that may arise in the future, depending on the outcome of uncertain events. These liabilities are not recognized on the balance sheet as they are not certain to occur. However, they are disclosed in the footnotes to the financial statements to provide users with relevant information about the potential risks and obligations that the company may face.

Explanation:

Contingent liabilities are shown as footnotes to the balance sheet for the following reasons:

1. Disclosure Requirements: Accounting standards require companies to disclose contingent liabilities in the footnotes to the financial statements. This is to ensure transparency and provide users with relevant information about potential risks and obligations that may impact the company's financial position.

2. Non-recognition on Balance Sheet: Contingent liabilities are not recognized as actual liabilities on the balance sheet because they are not certain to occur. Recognition criteria for liabilities require that there be a present obligation arising from past events, and it is probable that an outflow of resources will be required to settle the obligation. Since contingent liabilities do not meet these criteria, they are not recognized as actual liabilities on the balance sheet.

3. Potential Impact on Financial Position: Contingent liabilities have the potential to impact a company's financial position and future cash flows. By disclosing these liabilities in the footnotes, users of the financial statements can assess the potential risks and obligations that the company may face and make informed decisions.

4. Footnote Disclosure: The footnotes provide additional information and explanations to the financial statements. They contain important details about contingent liabilities, such as the nature of the obligation, the likelihood of occurrence, and the potential financial impact. By including this information in the footnotes, companies can provide users with a comprehensive understanding of the potential risks and obligations they may face.

In summary, contingent liabilities are not recognized as actual liabilities on the balance sheet but are disclosed in the footnotes to provide users with information about potential risks and obligations that may impact the company's financial position. This ensures transparency and allows users to make informed decisions based on the disclosed information.