Revenue Recognition
The realization principle determines when a business should recognize revenue. Listed next are three common business situations involving revenue. After each situation, we give two alternatives as to the accounting period (or periods) in which the business might recognize this revenue. Select the appropriate alternative by applying the realization principle, and explain your reasoning.
a. Airline ticket revenue: Most airlines sell tickets well before the scheduled date of the flight.(Period ticket sold; period of flight)
b. Sales on account: In June 2015, a San Diego-based furniture store had a big sale, featuring"No payments until 2016." (Period furniture sold; periods that payments are received from customers)
c. Magazine subscriptions revenue: Most magazine publishers sell subscriptions for future delivery of the magazine. (Period subscription sold; periods that magazines are mailed to customers)