When preparing a client’s balance sheet, a receivable resulting from a favorable legal judgment should generally be classified as a current asset if it is expected to be collected within one year or the operating cycle, whichever is longer. If the collection is expected to take longer than one year, it should be classified as a non-current asset under “Other Assets” or a similar designation.
To find the relevant Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) guidance, refer to ASC 450, which deals with “Contingencies,” specifically ASC 450-30-25-1, which addresses the recognition of gain contingencies. It’s important to ensure that all recognition criteria, such as the judgment being finalized and the likelihood of collection being reasonably assured, are met before recording such a receivable. Additionally, refer to ASC 310 regarding “Receivables” for further details on how to properly account for and disclose these amounts on the balance sheet.
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