Contract Assets and Liabilities

9 Months Ended

Sep. 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 September 30, 2021 and December 31, 2020 are as follows:

(dollars in millions)	September 30, 2021		December 31, 2020
Contract assets	$	10,899	$	9,931
Contract liabilities	(12,543)		(12,889)
Net contract liabilities	$	(1,644)	$	(2,958)

Contract assets increased $968 million during the nine months ended September 30, 2021 primarily due to sales in excess of billings at Pratt & Whitney and contractual billing terms on U.S. government and foreign military sales contracts at RMD. Contract liabilities decreased $346 million during the nine months ended September 30, 2021 primarily due to $364 million of contract liability reduction related to a contract termination at Collins Aerospace in the second quarter of 2021, revenue recognized on certain U.S. government contracts with milestone payments at RIS 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 $960 million and $3,686 million during the quarter and nine months ended September 30, 2021, respectively, related to contract liabilities as of January 1, 2021 and $480 million and $2,288 million during the quarter and nine months ended September 30, 2020, respectively, related to contract liabilities as of January 1, 2020.

As of September 30, 2021, our contract liabilities include approximately $440 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 include an allowance for credit losses of $250 million and $177 million as of September 30, 2021 and December 31, 2020, respectively.