SKY was a budget airline serving the Arabian Peninsula. The company provided employees with interest-free loans. The loans were repayable by the employee over a period of years or deducted from End of...

SKY was a budget airline serving the Arabian Peninsula. The company provided employees with interest-free loans. The loans were repayable by the employee over a period of years or deducted from End of Service benefit should the employee leave. SKY had certain current ratio requirements as a condition of its operating credit facilities with local banks. The company was not successful. It was losing money and had a high employee turnover. Deputy CFO, Jassir Al Ghabi, set up the General Ledger. Revenues from ticket sales were recognized at the date of sale/booking of flights rather than in Unearned Revenue until the flight date when revenue would be earned. Loans to employees were set up in expense accounts, the balances of which at year end automatically transferred to income summary causing the write-off of over 600,000 in receivables from employees.

Requirements

1. Would the early recognition of revenue affect current ratio calculations?

 2. How would the write-off of advances be picked up at year end?