A business school student is contemplating investing in two different online travel companies, Travelocity.com and Cheap Tickets. In order to evaluate both companies' financial statements, he recognizes he must first ensure they have acceptable and similar accounting practices - specifically in the area of revenue recognition - and needs to determine if the companies recognize revenue using gross booking, or using the commissions earned figure as used by traditional travel agencies. He knew there were many arguments supporting both gross booking and commissions style of recognizing revenue but he wanted to make sure that both companies were properly valued in the current marketplace. Once he has decided on the revenue recognition policies for both companies, he must perform an appropriate analysis to determine which company provides him with the best investment opportunity.
