The following is an excerpt from a conversation between Karen Wyer and Jim Harris just before they boarded a flight to Puerto Rico on United Airlines. They are going to Puerto Rico to attend their company’s annual sales conference. Karen: Jim, aren’t you taking an accounting course at City College? Jim: Yes, I decided it’s about time I learned something about accounting. You know, our annual bonuses are based upon the sales figures that come from the accounting department.
Karen: I guess I never really thought about it. Jim: You should think about it! Last year, I placed a $250,000 order on December 23. But when I got my bonus, the $250,000 sale wasn’t included. They said it hadn’t been shipped until January 4, so it would have to count in next year’s bonus.
Karen: A real bummer! Jim: Right! I was counting on that bonus including the $250,000 sale.
Karen: Did you complain?
Jim: Yes, but it didn’t do any good. Jacob, the head accountant, said something about matching revenues and expenses. Also, something about not recording revenues until the sale is final. I figure I’d take the accounting course and find out whether he’s just jerking me around.
Karen: I never really thought about it. When do you think United Airlines will record its revenues from this flight?
Jim: Mmm I guess it could record the revenue when it sells the ticket or when the boarding passes are taken at the door or when we get off the plane or when our company pays for the tickets or I don’t know. I’ll ask my accounting instructor.
Discuss when United Airlines should recognize the revenue from ticket sales to properly match revenues and expenses.