The following is an excerpt from a conversation between Sybil Towns and Greg Gibbs just before they boarded a flight to London on American Airlines. They are going to London to attend their company's annual sales conference.
Sybil: Greg, aren't you taking an introductory accounting course at college?
Greg: 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.
Sybil: I guess I never really thought about it.
Greg: You should think about it! Last year, I placed a $500,000 order on December 28. But when I got my bonus, the $500,000 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.
Sybil: A real bummer!
Greg: Right! I was counting on that bonus including the $500,000 sale.
Sybil: Did you complain?
Greg: 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 figure I'd take the accounting course and find out whether she's just jerking me around.
Sybil: I never really thought about it. When do you think American Airlines will record its revenues from this flight?
Greg: 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.