Contract Liabilities
Definition: Obligation for consideration received (ASC 606)
Scope:ModerateDifficulty:Difficult
Obligation for consideration received (ASC 606)
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Receive payment before performance | ||
| Customer pays $5,000 before goods ship (ASC 606). | ||
| CashAsset+ | $5,000 | |
| Contract LiabilitiesLiability+ | $5,000 | |
| Obligation to transfer goods/services in the future. | ||
| 2. Satisfy performance obligation | ||
| Goods delivered to customer. | ||
| Contract LiabilitiesLiability− | $5,000 | |
| RevenueRevenue+ | $5,000 | |
| Revenue recognized when performance obligation is met. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$5,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$5,000.00
Contract LiabilitiesContract LiabilitiesLiabilityAn obligation the business owes to others. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$5,000.00
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$5,000.00
Normal bal. ▶
$0.00
RevenueIncome earned from business operations. Normal balance: credit. Credits increase, debits decrease.RevenueIncome earned from business operations. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$5,000.00
Normal bal. ▶
$5,000.00
DurationShort-Term
Related Reports
- Form 10-K Annual Report(Primary — ASC 606 note)
External Links
- Revenue recognition#Contract liabilities — Wikipedia