Contract asset or receivable: what still has to happen before payment is due?
Revenue may be earned before the seller has an unconditional right to payment. Under IFRS 15, that earned balance is a contract asset if a condition other than time remains. When the right becomes unconditional, move it to receivables. The transfer does not create revenue again.
Read the payment condition before using the invoice label
IFRS 15 paragraphs 105 to 109 distinguish a contract asset from a receivable. A contract asset is a right to consideration for goods or services already transferred when that right depends on something besides the passage of time. A receivable is unconditional: only time remains before payment is due.
The distinction turns on enforceable terms and performance, not whether the finance team has printed an invoice. If the right is already unconditional and only the administrative act of sending the invoice remains, an unbilled balance can be a receivable. Conversely, a substantive further-performance condition can leave an earned amount as a contract asset.
This guide uses UK-adopted full IFRS for a 2026 annual period, without early adoption of IFRS 18. It assumes a valid customer contract and supported revenue recognition. It does not determine legal enforceability in any particular jurisdiction.
Do not confuse the payment test with the test for recognising revenue over time. IFRS 15 paragraph B10 explains that the enforceable compensation right relevant to paragraph 35(c) need not already be an unconditional receivable. In the example below, over-time recognition instead rests on the customer controlling the asset as it is enhanced, under paragraph 35(b).
Follow the earned balance across the milestone
All dates and amounts are hypothetical and exclude VAT and other taxes. The contract has one £100,000 performance obligation. The customer controls the asset as the seller enhances it, and the supported cumulative revenue at 31 October is £40,000. There are no advances, variable consideration, significant financing or loss allowances in the numbers.
The seller must complete a specified further performance milestone before it can demand payment for that £40,000. At 31 October, record Dr contract asset £40,000; Cr revenue £40,000. The recognised revenue reflects work transferred. The conditional payment right determines the asset classification.
On 5 November the seller earns a further £10,000 and achieves the milestone. Record Dr contract asset £10,000; Cr revenue £10,000 for that additional performance. The cumulative £50,000 then becomes unconditional, payable 30 days later. Record Dr receivable £50,000; Cr contract asset £50,000.
The November reclassification does not change October's cut-off or November's revenue. On collection, record Dr bank £50,000; Cr receivable £50,000.
| Event | Revenue for the event | Contract asset after event | Receivable after event |
|---|---|---|---|
| 31 October performance | £40,000 | £40,000 | £0 |
| 5 November further performance, before reclassification | £10,000 | £50,000 | £0 |
| 5 November unconditional right | £0 | £0 | £50,000 |
| Collection | £0 | £0 | £0 |
Sources and context, checked :
Separate the classification from the other assessments
After collection, these events have produced £50,000 of cumulative revenue and £50,000 of cash. Neither a contract asset nor a receivable remains for that amount. Crediting revenue by £50,000 again when billing would duplicate the revenue already recognised for performance.
The table presents gross balances and assumes no impairment for arithmetic clarity. Both contract assets and receivables require an IFRS 9 impairment assessment. Changing the balance's caption or moving it between schedules does not remove that assessment.
A contract asset also differs from a capitalised contract cost. Sales commissions or other qualifying cost assets concern expenditure. The contract asset in this example concerns consideration earned from the customer. Combining both in an undifferentiated work-in-progress schedule makes the payment condition harder to review.
Nor must the seller always finish the entire contract before recognising a receivable. The milestone in this example releases only the stated earned amount. Other contracts can create unconditional rights at different stages. Read the relevant terms for each balance.
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Make the remaining condition visible at close
For each earned balance, record the revenue recognised, the precise condition still preventing an unconditional right, and the evidence that the condition is substantive. Give someone responsibility for confirming when it clears. Keep the transfer to receivables separate from entries for newly earned revenue.
Reconcile opening and closing receivables, contract assets and contract liabilities. IFRS 15 paragraphs 116 to 118 include disclosure requirements for contract balances and their changes. A schedule that tracks performance, reclassification and collection separately supports that explanation.
The useful close question is specific: what must still happen before this earned amount becomes an unconditional right? If the answer is only that the due date has not arrived, the balance belongs in receivables under the stated facts.
Sources and context, checked :