The following is an excerpt from a conversation between Joel Loomis and Krista Truitt just before they boarded a flight to Paris on Delta Air Lines. They are going to Paris to attend their company’s annual sales conference.
Joel: Krista, aren’t you taking an introductory accounting course at college?
Krista: Yes, I decided it’s about time I learned something about accounting. You know, our annual bonuses are based on the sales figures that come from the accounting department.
Joel: I guess I never really thought about it.
Krista: You should think about it! Last year, I placed a $750,000 order on December
28. But when I got my bonus, the $750,000 sale wasn’t included. They said it hadn’t been shipped until January 3, so it would have to count in next year’s bonus.
Joel: A real bummer!
Krista: Right! I was counting on that bonus including the $750,000 sale,
Joel: Did you complain?
Krista: Yes, but it didn’t do any good. Ashley, the head accountant, said something about matching revenues and expenses. Also, something about not recording revenues until the sale is final. I figured I’d take the accounting course and find out whether she’s just jerking me around.
Joel: I never really thought about it. When do you think Delta Air Lines will record its revenues from this flight?
Krista: Hmmm . 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 Delta Air Lines should recognize the revenue from ticket sales to properly match revenues and expenses.