Revenue accounting under Ind AS 115 can be correct in the statement of profit and loss while the balance sheet is still wrong. The common problem is the label used for the related customer balance. A finance team may call an amount unbilled revenue, debtor, accrued income or customer advance, but Ind AS 115 asks a more precise question: has the entity performed, and is its right to consideration already unconditional?
The current ICAI text of Ind AS 115 addresses this in paragraphs 105 to 109. It separates three ideas: contract asset, receivable and contract liability. ICAI also provides an Educational Material on Ind AS 115 for implementation support.
The three balances in one sentence each
- Receivable: the entity has an unconditional right to consideration; only the passage of time is required before payment is due.
- Contract asset: goods or services have been transferred, but the right to consideration is still conditional on something other than merely waiting for the due date.
- Contract liability: the customer has paid, or an unconditional amount has become due, before the entity has transferred the related goods or services.
The classification follows the relationship between performance and payment, not simply whether an invoice has been generated.
Contract asset vs receivable: test conditionality
A contract asset exists when performance has occurred but the right to payment is not yet unconditional. For example, services may have been transferred and revenue recognised, while payment remains conditional on completing another contractual milestone or obtaining specified acceptance.
A receivable is different. Once the entity has a present unconditional right to consideration and only time remains before payment falls due, Ind AS 115 requires that right to be presented separately as a receivable. Therefore, billing status alone is not the accounting test. An internal label such as unbilled revenue should be investigated: if another substantive condition remains, it may be a contract asset; if the right is unconditional and only the payment date remains, it is a receivable.
Contract assets are also assessed for impairment under Ind AS 109. ICAI's Guidance Note on Division II - Ind AS Schedule III explains that contract assets are presented separately from trade receivables and that their impairment follows the basis applicable to financial assets within Ind AS 109.
Contract liability: payment before performance
If the customer pays consideration, or an unconditional amount becomes due, before the entity transfers the promised good or service, the contract is presented as a contract liability when payment is made or payment becomes due, whichever is earlier. It represents an obligation to perform in the future for consideration already received or due.
This is why an invoice does not automatically mean revenue. A business may invoice or collect an advance before satisfying the relevant performance obligation. Revenue is recognised as the promised goods or services are transferred in accordance with Ind AS 115.
A practical decision framework
- Has the entity transferred the relevant goods or services? If not, and consideration has been received or has become unconditionally due, analyse a contract liability.
- If performance has occurred, is the right to consideration unconditional? If only the passage of time remains before payment is due, classify it as a receivable.
- If performance has occurred but another condition remains, classify the right as a contract asset.
- Reassess when facts change. When a contract asset becomes unconditional, reclassify it to a receivable; the reclassification is not new revenue.
Worked example: contract asset becoming a receivable
Assume a consulting company appropriately recognises Rs. 6,00,000 of revenue by 31 March because the relevant service has been transferred. Under the enforceable contract, however, the right to bill and collect remains conditional on a customer acceptance certificate, which is issued on 5 April.
At 31 March, assuming all revenue-recognition criteria are otherwise satisfied, the corresponding balance is a contract asset. Once acceptance makes the right unconditional on 5 April, it becomes a receivable. The journal logic is:
- On recognition of the transferred service: Debit contract asset; credit revenue.
- When the right becomes unconditional: Debit receivable; credit contract asset.
- When cash is collected: Debit bank; credit receivable.
The second entry is a balance-sheet reclassification, not another revenue event.
Worked example: advance creating a contract liability
Assume a customer pays Rs. 3,00,000 in March for support services to be provided during April to June, and the arrangement qualifies as a customer contract under Ind AS 115. At receipt, the entity has cash but still owes the future service, so it recognises a contract liability. As the support service is transferred, revenue is recognised and the contract liability is reduced in line with satisfaction of the performance obligation.
Presentation and disclosure points
The ICAI Compendium of Indian Accounting Standards for 2025-2026 includes Ind AS 115 in Volume I. Ind AS 115 requires opening and closing balances of receivables, contract assets and contract liabilities from customer contracts to be disclosed when they are not otherwise separately presented or disclosed. It also requires explanation of significant changes in contract asset and contract liability balances.
- Do not leave a balance as a contract asset after the right has become unconditional.
- Do not treat every item called unbilled revenue as a contract asset without checking the payment condition.
- Do not recognise an advance invoice as revenue merely because the customer has been billed.
- Assess contract assets for impairment under Ind AS 109.
- Consider current or non-current presentation and applicable offsetting rules instead of automatically netting balances.
Month-end reconciliation checklist
- Reconcile opening to closing contract assets, receivables and contract liabilities.
- For each material contract asset, document the condition that still prevents the right from being unconditional.
- Identify contract assets that became receivables and confirm the reclassification did not duplicate revenue.
- Trace customer advances and amounts billed before performance to contract liabilities and then to revenue as performance obligations are satisfied.
- Reconcile impairment allowances for receivables and contract assets to the Ind AS 109 process.
- Review large manual journals near period end for mismatches between performance, billing and collections.
Common mistake: using invoice date as the answer
The simplest control is to separate three events: performance, unconditional entitlement and cash collection. They may occur on the same day, but often do not. The invoice date is useful evidence, but it does not replace analysis of contractual rights and performance.
Practical takeaway
Ask one question for each customer balance at reporting date: what still has to happen before the entity is entitled to payment? If nothing except time, the balance is a receivable. If performance has occurred but another condition remains, it is a contract asset. If the customer has paid or an unconditional amount is due before the entity has performed, it is a contract liability. Applying that sequence consistently makes revenue reconciliations, audit support and balance-sheet presentation easier to defend.
