Contract Assets and Liabilities

12 Months Ended

Dec. 31, 2023

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 as of December 31, 2023 and 2022 are as follows:

(dollars in millions)	2023		2022
Contract assets	$	12,139	$	11,534
Contract liabilities	(17,183)		(14,598)
Net contract liabilities	$	(5,044)	$	(3,064)

Contract assets increased $605 million during 2023 primarily due to sales in excess of billings on certain contracts at Pratt & Whitney and Raytheon. The above items were partially offset by a decrease in contract assets driven by a customer insolvency charge recorded in the second quarter of 2023 at Pratt & Whitney, the reclassification of certain Raytheon Contract assets to Other assets, current as a result of our definitive agreement to sell our CIS business (see “Note 2: Acquisitions and Dispositions” for additional information), and the EAC impacts related to the Powder Metal Matter recorded in the third quarter of 2023 at Pratt & Whitney. Contract liabilities increased $2,585 million during 2023 primarily due to billings in excess of sales on certain contracts at Pratt & Whitney and Raytheon and international advances at Raytheon.

In 2023, 2022 and 2021, we recognized revenue of $5.3 billion, $4.8 billion, and $4.3 billion related to our Contract liabilities at January 1, 2023, January 1, 2022, and January 1, 2021, respectively.

As of December 31, 2023, our Contract liabilities include approximately $405 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.

Contract assets consisted of the following at December 31:

(dollars in millions)	2023		2022
Unbilled	$	26,481	$	23,909
Progress payments	(14,342)		(12,375)
Total contract assets	$	12,139	$	11,534

The U.S. government has title to the assets related to unbilled amounts on U.S. government contracts that provide progress payments.

Contract assets are net of an allowance for expected credit losses of $197 million and $318 million as of December 31, 2023 and 2022, respectively. The allowance for expected credit losses activity was not significant in 2023 or 2022.