Contract Assets and Liabilities

9 Months Ended

Sep. 30, 2022

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Note 6: Contract Assets and Liabilities

Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Total contract assets and contract liabilities were as follows:

(dollars in millions)	September 30, 2022		December 31, 2021
Contract assets	$	12,297	$	11,361
Contract liabilities	(13,368)		(13,720)
Net contract liabilities	$	(1,071)	$	(2,359)

Contract assets increased $936 million during the nine months ended September 30, 2022 primarily due to sales in excess of billings at Pratt & Whitney, RMD and RIS. Contract liabilities decreased $352 million during the nine months ended September 30, 2022 primarily due to the effect of foreign currency exchange rate translation fluctuations at RMD and revenue recognized on certain contracts associated with performance at RMD and RIS. We recognized revenue of $1.1 billion and $4.1 billion during the quarter and nine months ended September 30, 2022, related to contract liabilities as of January 1, 2022 and $1.0 billion and $3.7 billion during the quarter and nine months ended September 30, 2021, related to contract liabilities as of January 1, 2021.

As of September 30, 2022, our Contract liabilities include approximately $355 million of advance payments received from a Middle East customer on contracts for which we no longer believe we will be able to execute on or obtain required regulatory approvals. These advance payments may become refundable to the customer if the contracts are ultimately terminated. In addition, as of September 30, 2022, our Contract liabilities include advance payments, in immaterial amounts, received from Russian customers on contracts we are currently unable to perform on due to global sanctions on Russia and export controls. Depending on the contractual terms and as allowed by sanctions, certain of these advance payments may become refundable.

Contract assets include an allowance for credit losses of $315 million and $251 million as of September 30, 2022 and December 31, 2021, respectively.