Chapter 4: Revenue Recognition

UAL says first-quarter unit revenue to fall as much as 12 per cent

http://ca.news.yahoo.com/s/capress/090320/business/ual_outlook_1

Summary:
This article mainly about the United Airlines announced the revenue for the first quarter of 2009 would drop 11 percent to 12 percent and this might due to the economic recession. In addition, the shares of the United’s parent UAL Corp. fell 71 cents. Also, United also said it is on pace for $80 million in cash losses on fuel hedges, which will settle during the first quarter and would add 51 cents per gallon to its fuel expenses. Moreover, the bets that the oil prices would stay high were made during the summer of 2008, and these bets are now forcing United to post some $645 million in collateral for the first quarter, for paying off its losing fuel bets. Despite these negative effects, United are pleased with its cost-cutting effort, which smalls the cost increase.

Connection:
Chapter 4 is mainly about how and when revenue should be recognized. Normally the measurement of operating performance is divided into revenues and expenses, which come up with net income. For the United Airlines, its revenue drops. Meanwhile, the expenses are increases, which give rise to the tremendous drop in the net income. Instead of charging higher prices, United tried to control the costs. Also, the United Airlines recognizes revenue when air transportation is provided, and this is matched with the revenue recognition criteria, which requires the performance has been achieved when the revenue is recognized.

Reflection:
Because of the recession, most tourism industries are tremendously influenced, because tourism is the unnecessary luxury. As a result, airline services are also affected negatively. The United Airlines has a terrific drop in revenue. However, it tried to cut expenses to balance the income so that the company would have the least negative effect. Income shows the performance of a company, even though it might be not as good as expected, every company should strictly stick to the Revenue Recognition Criteria so that management could make the best decision. Also, instead of increasing revenue, trying to control the expenses are also a good way to increase net income.