Delta Airlines Accrued Revenue Case Discussion

The following is an excerpt from a conversation between Sonia Lopez and Pete Lemke just before they boarded a flight to Paris on Delta Air Lines. They are going to Paris to attend their company’s annual sales conference.

Sonia: Pete, aren’t you taking an introductory accounting course at college?

Pete: Yes, I decided it’s about time I learned something about accounting. You know, our annual bonuses are based on the sales figures that come from the accounting department.

Sonia: I guess I never really thought about it.

Pete: You should think about it! Last year, I placed a $5,000,000 order on December 30. But when I got my bonus, the $5,000,000 sale wasn’t included. They said it hadn’t been shipped until January 9, so it would have to count in next year’s bonus.

• Sonia: A real bummer!

Pete: Right! I was counting on that bonus, including the $5,000,000 sale.

• Sonia: Did you complain?

Pete: Yes, but it didn’t do any good. Julie, 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 messing with me.

• Sonia: I never really thought about it. When do you think Delta Air Lines will record its revenues from this flight?

Required: Discuss when Delta Air Lines should recognize the revenue from ticket sales to properly match revenues and expenses (Tip: you should pull the 10-K annual report, look at the notes to the financial statement, Revenue part). You must provide support to your answer. At least two citations are required and comment on at least two of your classmates’ work.