Contract Liabilities

Contract liabilities are financial obligations a company has when it receives payment in advance for goods or services it has yet to deliver or perform. Essentially, the company owes the customer the product, service, or refund later, making this money a liability until the company fulfills its contractual commitment. Once the company delivers the goods or services, the liability is reduced, and revenue is recognized. This concept ensures that financial statements accurately reflect the company's obligations and the timing of income recognition, aligning revenue with the period in which the company actually provides the goods or services.