Most major airlines have frequent flyer programs that permit passengers to earn free tickets based on the number of reward miles they have flown. A Southwest Airlines annual report contained the following note:
Frequent Flyer Awards
The Company records a liability for the estimated incremental cost of providing free travel under its (and AirTran’s) frequent flyer program for all amounts earned from flight activity that are expected to be redeemed for future travel. The estimated incremental cost includes direct passenger costs such as fuel, food, and other operational costs, but does not include any contribution to overhead or profit.
1. What cost measures other than incremental cost could Southwest use?
2. What account should Southwest debit when it accrues this liability?

  • CreatedAugust 04, 2015
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