Contract Assets and Liabilities

6 Months Ended

Jun. 30, 2021

Revenue from Contract with Customer [Abstract]

Revenue Recognition [Text Block]

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 June 30, 2021 and December 31, 2020 are as follows:

(dollars in millions)	June 30, 2021		December 31, 2020
Contract assets	$	10,485	$	9,931
Contract liabilities	(12,591)		(12,889)
Net contract liabilities	$	(2,106)	$	(2,958)

Contract assets increased $554 million during the six months ended June 30, 2021 primarily due to sales in excess of billings at Pratt & Whitney. Contract liabilities decreased $298 million during the six months ended June 30, 2021 primarily due to $364 million of contract liability reduction related to a contract termination at Collins Aerospace and revenue recognized on certain international contracts with advances at RMD, partially offset by billings in excess of sales at Pratt & Whitney. We recognized revenue of $1,021 million and $2,726 million during the quarter and six months ended June 30, 2021, respectively, related to contract liabilities as of January 1, 2021 and $625 million and $1,808 million during the quarter and six months ended June 30, 2020, respectively, related to contract liabilities as of January 1, 2020.

As of June 30, 2021, our contract liabilities include approximately $440 million of advance payments received from a certain 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 include an allowance for credit losses of $247 million and $177 million as of June 30, 2021 and December 31, 2020, respectively.