When American Airlines sells tickets for future flights, it
debits Cash and credits an account entitled Air Traffic Liability
(as opposed to crediting Passenger Revenue Earned). This account,
reported recently at nearly $4.5 billion, is among the largest
liabilities appearing in the company’s balance sheet. a. Explain
why this liability is often referred to as a deferred revenue
account. b. What activity normally reduces this liability? Can you
think of any other transaction that would also reduce this account?
c. Assume that, in a recent flight, passengers of the airline used
tickets that they had purchased in advance for $87,500. Record the
entry American Airlines would make upon completion of this
flight.
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