Contract liabilities, also known as contract liabilities or deferred income, arise when a customer has paid for a good or service in advance of receiving it. According to the accounting standards, these liabilities are recorded as a liability on the balance sheet until the corresponding goods or services have been provided to the customer. When a customer pays for a product or service before it is delivered or performed, a contract liability is recognized. This liability is then reduced as the performance obligations under the contract are fulfilled, and revenue is recognized accordingly. As per the guidelines, when a company receives consideration from a customer before it has been earned, it should recognize a contract liability, reflecting the obligation to transfer goods or services to the customer in the future. Once the company transfers the promised goods or services to the customer, the contract liability is reduced, and revenue is recognized.