contract assets and liabilities

Contract assets and liabilities are terms used in accounting to reflect a company's rights and obligations related to contracts. A contract asset occurs when a company has provided goods or services but has not yet received payment, indicating that it has a right to receive money in the future. Conversely, a contract liability arises when a company has received payment for goods or services it has yet to deliver, meaning it owes something to the customer. Together, they help businesses track their financial position and ensure accurate revenue recognition.