Different businesses use different accounting for its economic transactions and recognize its revenue at different stages. Generally, revenue must be recognized when goods or services are delivered to the customer with the determined amount that customer agreed to pay. The Airline Company and Travel Agency are both in service business; however, the differences are in recognizing revenue. The firm should consider several factors when determining the amount of revenue to recognize by asking as the sale realized or realizable and has the sale been earned and appropriate accounting policy and term for the airline tickets.
Revenue Recognition for a Travel Agency
The most travel agents are commission based, and they need to make the number of daily …show more content…
When a passenger buys an airline ticket whether it is paper or e-tickets, the payments have been made in advance of the service or transportation date. This means unearned revenue should be recognized when the ticket is sold and until the transportation is delivered (Schmidt, 2004). When ticket is purchased, an accountant credits an unearned revenue account, which will be debited when the flight actually occurred. According to KPMG (2007), it stated that “The general accounting practice for passenger revenue recognition is that revenue received is deferred and classified as a liability on the balance sheet until the passenger is uplifted or service provided, at which time revenue is recognized in profit and loss.” This also means that airline companies should make assumptions to determine when and how to recognize unearned revenue concerning to airline tickets that is not used at the time and the date of travel. Appropriate revenue recognition should also apply to the tickets that are never redeemed due to passenger being late from the late, not being in present at the time of the flight, or flying by another airline. Therefore, the key factor to determining an appropriate accounting policy is the underlying ticket terms and conditions (KPMG, 2007). In addition, historical statistics and data play the important role; especially when it comes to limited refundable …show more content…
Travel agent recognizes the revenue as soon as the cash is received when customer pays for the ticket; on the other hand, an airline ticket is paid for before the flight is unearned revenue for the Airline Company until flight is delivered. There are several factors should be considered to determine revenue recognition such as the sale either should be realized or realizable, the sales must be earned, and company policy and ticket term should be considered. Revenue recognition is one of the most critical accounting policies for all airlines companies, and the general principle of revenue should be recognized when goods and services are
Revenue Recognition for a Travel Agency
The most travel agents are commission based, and they need to make the number of daily …show more content…
When a passenger buys an airline ticket whether it is paper or e-tickets, the payments have been made in advance of the service or transportation date. This means unearned revenue should be recognized when the ticket is sold and until the transportation is delivered (Schmidt, 2004). When ticket is purchased, an accountant credits an unearned revenue account, which will be debited when the flight actually occurred. According to KPMG (2007), it stated that “The general accounting practice for passenger revenue recognition is that revenue received is deferred and classified as a liability on the balance sheet until the passenger is uplifted or service provided, at which time revenue is recognized in profit and loss.” This also means that airline companies should make assumptions to determine when and how to recognize unearned revenue concerning to airline tickets that is not used at the time and the date of travel. Appropriate revenue recognition should also apply to the tickets that are never redeemed due to passenger being late from the late, not being in present at the time of the flight, or flying by another airline. Therefore, the key factor to determining an appropriate accounting policy is the underlying ticket terms and conditions (KPMG, 2007). In addition, historical statistics and data play the important role; especially when it comes to limited refundable …show more content…
Travel agent recognizes the revenue as soon as the cash is received when customer pays for the ticket; on the other hand, an airline ticket is paid for before the flight is unearned revenue for the Airline Company until flight is delivered. There are several factors should be considered to determine revenue recognition such as the sale either should be realized or realizable, the sales must be earned, and company policy and ticket term should be considered. Revenue recognition is one of the most critical accounting policies for all airlines companies, and the general principle of revenue should be recognized when goods and services are