ASC 908: Passenger Revenue Recognition Journal Entries

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The ASC 908 Airlines standard provides industry-specific guidance on the accounting and reporting for airline companies. One of the key aspects of financial reporting for airlines is the recognition of passenger revenue, which constitutes a significant portion of their income. In this article, we will explore how passenger revenue is recognized under the ASC 908 Airlines standard and explain the associated journal entries.

 

Understanding Passenger Revenue Recognition

Passenger revenue recognition in the airline industry typically occurs when transportation services are rendered. Under ASC 908 Airlines, revenue from ticket sales should be deferred until the flight occurs or the ticket expires. When the flight takes place, the deferred revenue is recognized as earned revenue. Additionally, airlines must consider the impact of unused tickets, refunds, and the allocation of revenue to various components of bundled services.

 

ASC 908 Airlines: Passenger Revenue Recognition Transaction

To illustrate passenger revenue recognition, let's look at an example:

 

AirlineX sells 100 tickets for a flight at a price of $200 each. The total ticket sales amount to $20,000. The flight takes place within the reporting period, and five passengers do not show up for the flight. The unused tickets expire and are non-refundable.

 

Journal Entries for Passenger Revenue Recognition Transactions

The journal entries for passenger revenue recognition under ASC 908 Airlines are as follows:

 

1. Recording the ticket sales:

 

Dr. Cash (or Accounts Receivable) $20,000 (100 tickets x $200)

 

2. Recognizing revenue for the completed flight:

 

Dr. Deferred Revenue $19,000 (95 tickets x $200)

 

3. Recording the unused ticket revenue:

 

Dr. Deferred Revenue $1,000 (5 unused tickets x $200)

 

In this example, AirlineX recognizes $19,000 in passenger revenue for the completed flight and $1,000 in unused ticket revenue. The total recognized revenue is $20,000, which matches the initial ticket sales.

 

Passenger revenue recognition is a critical aspect of financial reporting for airline companies. The ASC 908 Airlines standard provides guidance on the recognition and measurement of passenger revenue, ensuring that it is presented accurately and consistently in financial statements. By understanding the journal entries for passenger revenue recognition transactions, financial professionals and business owners in the airline industry can better comprehend the impact of revenue recognition on their company's financial health.