contracts

Question

how do you post a 75,000 contract so it shows in assets in the balance sheet. we are a service company with signed contracts for future work

aberi · Answer

This would not be considered an asset until you performed your end of it . see below: 
 Recognition Of Contract Assets And Liabilities 
 While similar to prior guidance for construction- and production-type contracts, the concept behind contract assets and contract liabilities contains some differences. Furthermore, under ASC 606, contract assets and contract liabilities may be recognized for all contract types. 
 A contract asset is an entity&rsquo;s right to payment for goods and services already transferred to a customer if that right to payment is conditional on something other than the passage of time. For example, an entity will recognize a contract asset when it has fulfilled a contract obligation but must perform other obligations before being entitled to payment. In contrast, a receivable represents a right to payment that is unconditional , except for the passage of time. Because a receivable is not a contract asset, receivables must be presented separately from contract assets on the balance sheet (ASC 606-10-45-3). 
 A contract liability is an entity&rsquo;s obligation to transfer goods or services to a customer (1) when the customer prepays consideration or (2) when the customer&rsquo;s consideration is due for goods and services that the entity will yet provide (ASC 606-10-45-2)&mdash;whichever happens earlier. 
 Generally, contract assets and contract liabilities are based on past performance. Whether to record a contract asset or a contract liability depends on which party acted first. For example, when a customer prepays, the receiving entity records a contract liability&mdash;an obligation that must be fulfilled to &ldquo;earn&rdquo; the prepaid consideration. Once the entity performs by transferring goods or services to the customer, the entity can recognize revenue and adjust the liability downward. On the other hand, an entity could perform first by transferring goods or services to the customer, recognizing a contract asset and revenue for their work although they are not yet legally entitled to payment. Once the entity is legally entitled to payment, the entity can record a receivable and remove the contract asset from their books. 
 A possible exception to the past performance rule is a non-cancellable contract in which an entity records a contract liability before payment is received. For example, suppose an entity enters into a contract to deliver goods to a customer. The contract is non-cancellable, and the entity and customer agree upon a payment schedule. Assume the date for a customer&rsquo;s prepayment arrives, but the customer fails to pay on time. The entity recognizes a receivable because non-cancellable contract payments are treated as guaranteed. In this situation, recognition of the receivable is based on the contract&rsquo;s payment schedule rather than the timing of revenue recognition. In conjunction with the receivable, the entity will also recognize a contract liability to deliver goods. This liability will be reversed, and revenue will be recognized once the entity fulfills the performance obligation by delivering goods to the customer. 
 It should be noted, however, that there is a general resistance to &ldquo;grossing up&rdquo; the balance sheet in this manner. If a payment is due but has not been received, a company will likely consider other factors before recognizing a receivable (e.g., concerns about the relationship with the customer, enforceability of the arrangement, and collectability of the enforcement). 
 Receivables and contract assets are both subject to impairment testing in accordance with ASC 310-10-35 (Receivables &ndash; Subsequent Measurement). When there is a difference between a receivable linked to a contract liability and the associated revenue later recognized, the refundable amount is treated as an expense (ASC 606-10-45-4). Impairment losses on receivables or contract assets that originate from contracts with customers should be presented separately from other impairment losses.

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contracts

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