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Abstract ▼ AI-Helper

In revenue recognition of travel agencies, there are two ways of accounting treatment: gross amount principle and net amount principle. Applying gross amount principle means recording operating revenue by the total amount of receipts from clients and cost of sales by payments to suppliers. In cont...

In revenue recognition of travel agencies, there are two ways of accounting treatment: gross amount principle and net amount principle. Applying gross amount principle means recording operating revenue by the total amount of receipts from clients and cost of sales by payments to suppliers. In contrast, net amount principle considers the difference between the receipts for travel packages from clients and the supply price as an operating revenue, so related costs are offset and only the difference is recorded in income statement. There is no difference between them in terms of net profit and cash flow. It is desirable that travel agencies adopt gross amount principle if the value of travel agencies is rated by external amount such as sales revenue, because adopting gross amount principle brings about increasing company’s value. However, tax laws make travel agencies pay 10% VAT(value added tax) by sales standard, so they prefer net amount principle and it can be interpreted that net amounts recognition standards are proper to financial accounting standards which have been changed in order to improve accounting transparency and prepare international consistency. The tax authority and the judiciary court judge gross amount principle or net amount principle according to composition of goods and conditions of contract. This study investigates whether travel agencies record operating revenue by the total sale price or just by sales commission. It also analyzes revenue recognition of 18 travel agencies, and offers betterment of the accounting treatment in travel agencies.

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