Contract Asset and Contract Liability Accounts

The presentation section of the revenue standards requires that when either party to a contract has performed, an entity must show the contract in a financial statement as a contract asset or a contract liability.

Whether the contract is shown as a contract asset or a contract liability depends on the relationship between the entity's performance and the customer's payment.

The entity must present any unconditional rights for payment separately as a receivable. To achieve this, the business must provide the following two balance sheet accounts:

• Contract asset account
• Contract liability account

These accounts are the elements that are offset to represent the contract asset and liability described previously and are generally consistent with the debit or credit side of the trial balance. These accounts represent:

• Contract asset: The entity's right to payment in exchange for goods or services that the entity has transferred to a customer.
• Contract liability: The entity's obligation to transfer goods or services to a customer

You can:

• Process the accrual and revenue entries at the performance obligation level.
• Recognize the consideration in the asset account at the invoice level.
• Control revenue posting at the performance obligation level. You can break it down in revenue accounts by detail.