Backlog expected to be recognized in the next twelve months, percent

[Table of Contents](#ifce71646d6a145519f2ac4db7d9b12ca_7) The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (revenue recognized exceeds amount billed to the customer), and deferred revenue (advance payments and billings in excess of revenue recognized). Accounts receivable from customers were $3,394 million and $2,896 million at September 30, 2022 and December 31, 2021, respectively. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Unbilled receivables were $231 million and $187 million at September 30, 2022 and December 31, 2021, respectively, and are recorded in Prepaid expenses and other current assets. The increase in unbilled receivables reflects higher revenue recognized from increased business activity in 2022.Changes in the deferred revenue liabilities are as follows:

|  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |
| (In millions) | Deferred Revenue |
| Balance at January 1, 2022 | $ | 422  |  |
| Customer deposits and billings | 1,135  |  |
| Revenue recognized in the period | (1,086) |  |
|  |  |
| Translation and other | (42) |  |
|  |  |
| Balance at September 30, 2022 | $ | 429  |  |



|  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |
| (In millions) | Deferred Revenue |
| Balance at January 1, 2021 | $ | 257  |  |
| Customer deposits and billings | 891  |  |
| Revenue recognized in the period | (858) |  |
| Deferred revenue from business acquisitions | 99  |  |
| Translation and other | (8) |  |
| Balance at September 30, 2021 | $ | 381  |  |

Deferred revenue liabilities of $407 million and $395 million as of September 30, 2022 and December 31, 2021, respectively, were included in Other current liabilities with the remaining balance presented in Other noncurrent liabilities.A significant portion of open orders placed with Eaton are by original equipment manufacturers or distributors. These open orders are not considered firm as they have been historically subject to releases by customers. In measuring backlog of unsatisfied or partially satisfied obligations, only the amount of orders to which customers are firmly committed are included. Using this criterion, total backlog at September 30, 2022 was approximately $11.0 billion. At September 30, 2022, approximately 82% of this backlog is targeted for delivery to customers in the next twelve months and the rest thereafter.   
Note 4. CREDIT LOSSES FOR RECEIVABLESReceivables are exposed to credit risk based on the customers’ ability to pay which is influenced by, among other factors, their financial liquidity position. Eaton’s receivables are generally short-term in nature with a majority outstanding less than 90 days.Eaton performs ongoing credit evaluation of its customers and maintains sufficient allowances for potential credit losses. The Company evaluates the collectability of its receivables based on the length of time the receivable is past due, and any anticipated future write-off based on historic experience adjusted for market conditions. The Company's segments, supported by our global credit department, perform the credit evaluation and monitoring process to estimate and manage credit risk. The process includes an evaluation of credit losses for both the overall segment receivable and specific customer balances. The process also includes review of customer financial information and credit ratings, approval and monitoring of customer credit limits, and an assessment of market conditions. The Company may also require prepayment from customers to mitigate credit risk. Receivable balances are written off against an allowance for credit losses after a final determination of collectability has been made. Accounts receivable are net of an allowance for credit losses of $43 million and $42 million at September 30, 2022 and December 31, 2021, respectively. The change in the allowance for credit losses includes expense and net write-offs, none of which are significant.  
10
