1. Contract assets.
According to Accounting Standard for Business Enterprises No. 14 - Revenue, contract assets refer to the right of an enterprise to receive consideration for the transfer of goods to a customer, and this right depends on factors other than the passage of time. For example, if an enterprise sells two clearly distinguishable goods to a customer, and the contract stipulates that after the delivery of goods A, it cannot receive payment, and only after the delivery of goods B can it have the right to receive payment. The enterprise shall regard the right to receive payment for commodity A as a contract asset.
Doesn't it seem like contract assets are a bit like accounts receivable? So, what is the difference between "contract assets" and "accounts receivable"?
To put it simply, "accounts receivable" represents the right of an enterprise to collect the contractually agreed payment from the customer unconditionally (i.e. only depending on the passage of time), and the only restriction is time, when the time passes until the other party pays.
The right to receive money represented by a "contract asset" is also subject to conditions other than the passage of time. Generally speaking, the receivables can not be collected by waiting, but also by doing something else, and then they should be included in the contract assets.
Therefore, in terms of asset quality, contract assets are weaker than accounts receivable.
In fact, the contract assets are used to improve the accounting of accounts receivable, and the accounts receivable that were previously placed in the accounts receivable pocket and meet certain conditions need to be taken out separately and put in the pocket of the contract assets.
From a practical point of view, at present, the contract assets of most listed companies are 0 yuan, and in a few cases, a part of the accounts receivable can meet the recognition conditions of the contract assets, and can be taken out separately and put into the pocket of the contract assets.
From a practical point of view, the general contract assets are smaller than the accounts receivable, or even greatly smaller than the accounts receivable.
Example 1: North China Pharmaceutical's account receivable balance at January 1, 2018: 120 billion yuan, according to the definition of contract assets in the new standard, it was found that there was not a dime in the pocket that met the recognition conditions of contract assets. Therefore, the balance of accounts receivable is unchanged, and the balance of contract assets is 0 yuan. In fact, until 2020, North China Pharmaceutical's financial report has not confirmed any contract assets.
Example 2: WuXi AppTec's due balance in the accounts receivable pocket at the point of January 1, 2018: 23$8 billion; After the implementation of the new standard adjustment, it needs to be taken out separately 38.5 billion yuan (about 16.5 billion18% or so) into the pocket of contract assets, and there is about 199.5 billion yuan (83.5 billion.)around 82%).
Example 3: Investor asks: What is the standard for Company A to confirm the contract assets? What is the difference between accounts receivable and accounts receivable?
The secretary of the board of directors replied: Dear investors, hello! Thank you for your interest.
According to the requirements of the Accounting Standard for Business Enterprises No. 14 - Revenue issued by the Ministry of Finance in July 2017, Company A implemented the new revenue standard on January 1, 2020. However, if the customer has not paid the contract consideration and the company has fulfilled the performance obligation in accordance with the contract, it is the right to unconditionally collect money from the customer, which is listed as accounts receivable in the balance sheet.
Note: The amount of accounts receivable and contract assets in the financial report includes VAT. Therefore, a contract asset or accounts receivable generates a main business income and a tax payable at the same time.
2. Contract liabilities.
Contract liabilities are a further addition to the original accounts receivable account under the new revenue standard, and the concepts of contract liabilities and advance accounts receivable are easily confused.
If you distinguish between contract liabilities and advance receivables, you understand contract liabilities.
According to the Accounting Standard for Business Enterprises No. 14 Revenue, contract liabilities refer to the obligation of an enterprise to transfer goods to customers for consideration received or receivable from customers.
At first glance, contract liabilities and advance accounts receivable are the same, both are collected in advance by the enterprise, but throughout the new revenue standard, an important element is emphasized "contract", if the enterprise collects the customer's payment constitutes the relationship between rights and obligations to be performed, then it needs to be accounted for through contract liabilities, otherwise it is accounted for through advance receivables.
It should be noted that the recognition of contractual liabilities is not a precondition for the collection of payments.
The concept of "accounts receivable" does not emphasize the contract with the customer, and the consideration received before the contract is concluded cannot be called a contract liability, but it can still be used as an advance receivable.
Once the contract is formally formed, the advance receivables are transferred to the contract liability.
To distinguish in one sentence: all receipts that have been contracted are contractual liabilities; Advance receipts are made for which money has been received but no contract has been signed or is not related to contractual obligations.
The similarity between the two is that the money is collected before the goods are supplied, but the advance receivables only include the money that has been received, while the contractual liabilities also include the money that has not been received.
Doesn't it seem that the scope of contract liabilities is not only larger than that of pre-receivables, but it also seems that they are also coming to grab the share of pre-receivables.
Most of the things that were previously placed in the pocket of advance receipts need to be taken out and put into the pocket of contract liabilities, and only a small part continues to remain in the pocket of advance receipts.
From a practical point of view, the ability of contract liabilities to grab "advance receipts" is much stronger than the ability of contract assets to grab "accounts receivable", and the advance receipts are covered by contract liabilities on a large scale.
Many listed companies have snatched 100% of the advance receipts from their contract liabilities, and even if they do, they are sporadic amounts.
Example 4: As a top real estate company in China, last year's sales revenue exceeded 600 billion, why is the pre-receivable account in the balance sheet liability account only a few hundred million? How do I deal with this account? How is it different from other real estate companies?
The secretary of the board of directors replied: The company's pre-collected housing payment is placed in the contract liability account, and the balance at the end of 2018 has exceeded 500 billion yuan, and the pre-receivables account only includes the advance collection generated by the business other than residential sales. Contract liabilities are an account used by the Company since the implementation of the new revenue standard in 2018.
Example 5: The balance in WuXi AppTec's pocket at the time of January 1, 2018: 60.4 billion yuan; After the implementation of the new standard adjustment, all of them need to be put into the pocket of contract liabilities, and the pocket of advance receipts will be empty.
Since the implementation of the new accounting standards in 2018, WuXi AppTec's advance payment accounts have been idle, all of which are 0 yuan.
From the perspective of accounting treatment, the basic accounting treatment of advance accounts receivable is almost completely covered by contract liabilities.
However, one of the important differences is that, on the premise of the relevance of the performance obligation, when the advance payment has not been collected by the enterprise, if it can be determined that the enterprise has the right to collect the payment unconditionally, the enterprise should still recognize the contractual liability.
Accounting treatment of such special cases: "Debit: accounts receivable and notes receivable; credit: contract liabilities", and the accounts receivable account can only be recognized and measured after the consideration is actually received, and it is impossible to appear in practice "debit: accounts receivable and notes receivable; Credit: Accounts Received in Advance".
The reason behind this is the difference in the accounting scope of contract liabilities and advance receivables: contract liabilities can not only account for the advance receipts actually received, but also account for the advance receipts that have not actually arrived but have the right to collect.
Although the contract liabilities seem to expand the accounting scope of the accounts receivable, and even the accounting entries of "debit: accounts receivable and notes receivable, credit: contract liabilities" can be prepared, it still cannot completely replace the accounts receivable in advance, because the contract liabilities should be based on the recognizability of the performance obligation as the premise, otherwise the amount collected first must be recognized as general advance receivables.
Everyone is welcome to discuss.