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Communication Delta Air Lines is a major passenger airline headquartered in the United States. Most Delta passengers purchase their tickets several weeks prior to taking the trip and use a credit card such as VISA or American Express to pay for their ticket. The credit card company pays the airline at the time the flight is booked, several weeks prior to the flight. Write a brief memo to your instructor explaining when Delta should recognize revenue from ticket sales.

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 3, Problem 4TIF
Textbook Problem
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Communication

Delta Air Lines is a major passenger airline headquartered in the United States. Most Delta passengers purchase their tickets several weeks prior to taking the trip and use a credit card such as VISA or American Express to pay for their ticket. The credit card company pays the airline at the time the flight is booked, several weeks prior to the flight.

Write a brief memo to your instructor explaining when Delta should recognize revenue from ticket sales.

To determine

Prepare a memorandum, and explain recognition of revenue from ticket sales.

Explanation of Solution

The revenue recognition principle:

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.  

Prepare a memo for the recognition of revenue from ticket sales of D Air Lines.

Memo

From,

ABC

To,

XYZ

Re:  Revenue recognition of ticket sales

Dear Sir,

Customer of D Air Line typically purchase tickets for air travel several weeks prior to their scheduled flight, and pay for their tickets using a credit card. The credit card company will remit payment to D Air line shortly. D Air line will not record revenue from the ticket until the air travel has taken place, because D Air Line does not earn the ticket revenue until it provides the required service.

When D Air line receives payment from the credit card company for an airplane ticket, D Airline records it as a liability (unearned revenue), and the journal entry for cash received from credit card company is as follows:

DateDescriptionPost Ref...

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Chapter 3 Solutions

Financial And Managerial Accounting
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