The following is an excerpt from a conversation between Joel Loomis and Krista Truitt just before they board a flight to Paris on Air Canada. 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 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 the 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 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.
Joel: I never really thought about it. When do you think Air Canada 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 Air Canada should recognize the revenue from ticket sales to properly match revenues and expenses.