The following is an excerpt from a conversation between Nathan Cisneros and Sonya Lucas just before they boarded a flight to Paris on American Airlines. They are going to Paris to attend their company€™s annual sales conference.
Nathan: Sonya, aren€™t you taking an introductory accounting course at college?
Sonya: 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.
Nathan: I guess I never really thought about it.
Sonya: You should think about it! Last year, I placed a $300,000 order on December 23. But when I got my bonus, the $300,000 sale wasn€™t included. They said it hadn€™t been shipped until January 5, so it would have to count in next year€™s bonus.
Nathan: A real bummer!
Sonya: Right! I was counting on that bonus including the $300,000 sale.
Nathan: Did you complain?
Sonya: Yes, but it didn€™t do any good. Beth, 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 she€™s just jerking me around.
Nathan: I never really thought about it. When do you think American Airlines will record its revenues from this flight?
Sonya: 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 American Airlines should recognize the revenue from ticket sales to properly match revenues and expenses.

After reviewing the financial statements, the loan officer at the bank asked your brother if he used the accrual basis of accounting for revenues and expenses. Your brother responded that he did and that is why he included an account for €œAmounts Due from Customers.€ The loan officer then asked whether or not the accounts were adjusted prior to the preparation of the statements.
Your brother answered that they had not been adjusted.
1. Why do you think the loan officer suspected that the accounts had not been adjusted prior to the preparation of the statements?
2. Indicate possible accounts that might need to be adjusted before an accurate set of financial statements could beprepared.

Chestnut Television Repair Income Statement For the Year Ended August 31, 2006 $83,280 Service revenue Less: Rent paid Wages paid Supplies paid Utilities paid Insurance paid Miscellaneous payments $20,000 18,500 5,100 3,175 2,400 2,150 51,325 $31,955 Net income Chestnut Television Repair Balance Sheet August 31, 2006 Assets Cash Amounts due from customers Truck Total assets S11,150 6,100 30,000 $47,250 Equities Stockholders' equity $47,250