Litigation is a court process that, ideally, ends up with a resolution for a lawsuit. A settlement resulting from the litigation is money that is paid to the party bringing the suit in return for damages and based on the decisions of the court. However, for the business that receives the settlement, the money counts as income and needs to be added to business financial statements in some way.
Financial statements are designed to show basic information on a company's financial state that can be easily accessed by anyone. To this end, generally accepted accounting principles have strict standards on what information makes up the primary financial statements, like the income statement, budget sheet and state of cash flows. This includes the entries the statements show and the order they come in, which can leave little room for adding information like a litigation settlement.
Advertisement Article continues below this adRevenue received from a litigation settlement will show up in financial statements, but it will also be hidden within other asset and revenue accounts. However, financial statements also have note sections in which litigation can be disclosed, and the United States does have regulations that require companies to disclose any litigation that they went through, especially if it resulted in a change in income.