Contract Assets and Liabilities

3 Months Ended

Mar. 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 were as follows:

(dollars in millions)	March 31, 2023		December 31, 2022
Contract assets	$	12,729	$	11,534
Contract liabilities	(14,870)		(14,598)
Net contract liabilities	$	(2,141)	$	(3,064)

Contract assets increased $1,195 million during the quarter ended March 31, 2023 primarily due to sales in excess of billings on certain contracts at RMD, Pratt & Whitney, and RIS. Contract liabilities increased $272 million during the quarter ended March 31, 2023 primarily due to billings in excess of sales on certain contracts at Pratt & Whitney and RMD. We recognized revenue of $1.9 billion during the quarter ended March 31, 2023, related to contract liabilities as of January 1, 2023 and $1.8 billion during the quarter ended March 31, 2022, related to contract liabilities as of January 1, 2022.

As of March 31, 2023, our Contract liabilities include approximately $395 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 $330 million and $318 million as of March 31, 2023 and December 31, 2022, respectively.