Paragraphs 606-10-45-1 through 45-2, together with the definitions of a contract asset and contract liability, explain when an entity has a contract asset and a contract liability. Some stakeholders have questioned whether an entity could have a contract asset and a contract liability for a single contract when, for instance, the entity has satisfied (or partially satisfied) one performance obligation in a contract for which consideration is not yet due but has received a prepayment in respect of another unsatisfied performance obligation in the contract.

Paragraph 606-10-45-1, together with the explanation in paragraph BC317 of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), states that contract asset or contract liability positions are determined for each contract on a net basis. In other words, an entity nets each contract to either a contract asset or a contract liability and does not recognize separately a contract asset and a contract liability for a single contract.

In accordance with paragraph 606-10-45-1, if the contract position incorporates an unconditional right to consideration (that is, only the passage of time is required before payment of that consideration is due), that amount is, in effect, extracted from the net contract position and presented separately as a receivable. Therefore, an entity might present a receivable and a contract asset or a receivable and a contract liability (as illustrated in Example 39, Contract Asset Recognized for the Entity’s Performance, and Example 40, Receivable Recognized for the Entity’s Performance).

As noted in paragraph BC320 of Update 2014-09, the entity would apply other presentation guidance to determine whether to present the sum of its contract assets and the sum of its contract liabilities as separate line items in the statement of financial position. An entity would be able to describe those items using alternative descriptions in accordance with paragraph 606-10-45-5.