Section 8-General

a) The profit and loss accounts are igned to reflect, through natural upings, the elements entering into the ivation of income or loss accruing to proprietary interests during each acanting period.

b) The prescribed system of accounts vides for the co-ordinate grouping all revenues and expenses in terms of h major natural objectives and funcnal activities and for subdivision of h to provide varying degrees of detail air carriers of differing accounting pacities and/or requirements.

c) The detailed objective accounts ablished for each air carrier group, the dual subdivision of profit and loss ments in terms of both natural obtives and functional activities, are forth in section 7, Chart of Profit and ss Accounts.

d) The prescribed system of accounts Ovides generally that profit and loss ments shall be grouped in accordance ch their inherent characteristics within ⇒ following primary classifications:

(1) Operating revenues. (i) This primary classification shall include revenues of a character usually and ordinarily derived from the performance of air transportation, and net revenues from services performed incidental to the performance of air transportation, which relate to services performed during the current accounting year, and adjustments of a recurrent nature applicable to services performed in prior accounting years. (See section 2-7.)

(ii) Operating revenues shall be subclassified in terms of functional activities as provided in section 9.

(2) Operating expenses. (1) This primary classification shall include expenses of a character usually and ordinarily incurred in the performance of air transportation which are attributable to services performed during the current accounting year, and adjustments of a recurring nature attributable to services performed in prior accounting years. (See section 2-7.)

(ii) Operating expenses shall be subclassified in terms of functional activities as provided in sections 10 and 11.

(3) Nonoperating income and expense-net. This primary classification (8100) shall include income and loss incident to commercial ventures not inherently related to the performance of the common carrier air transport services of the accounting entity; other revenues and expenses attributable to financing or other activities which are extraneous to and not an integral part of air transportation or its incidental services; and special recurrent items of a nonperiod nature.

(4) Income taxes for current period. This primary classification (9100) shall include provisions for Federal, state, local and foreign taxes which are based upon the net income of the air carrier for the current period together with refunds for excess profits credits or carry back of losses and increases or reductions of income taxes of prior years of a magnitude which will not distort net income of the current accounting year. Income taxes applicable to special income credits or debits recorded in profit and loss classification 9700 Special Items, and other material income tax items not allocable to income of the current accounting year, shall not be included in this classification but in profit and loss classification 9700 Special Items.

(5) Special items. This primary classification (9700) shall include extraordinary credits and debits, exclusive of ordinary adjustments of a recurring nature, that are of sufficient magnitude to materially distort the total operating revenues or total operating expenses and permit misleading inferences to be drawn therefrom (see sec. 2-7).

[ER-327, 26 F.R. 4222, May 16, 1961 as amended by ER-437, 30 F.R. 8830, July 14, 1965]

Section 9-Functional ClassificationOperating Revenues

3900 Transport Revenues.

This classification is prescribed for all air carrier groups and shall include all revenues from the air transportation of traffic of all classes. It shall consist of the following subclassifications: 3100

Scheduled Services.

This subclassification shall include revenues from the transportation by air of traffic between points prescribed in certificates of public convenience and necessity issued by the Civil Aeronautics Board and held by the air carrier, for the transportation of individual passengers or cargo shipments (as opposed to charter of aircraft) on flights

performed pursuant to published sched filed with the Civil Aeronautics Board, extra section or other flights performe an integral part of the air carrier's lished flight schedules.

3200 Nonscheduled Services.

This subclassification shall include nues from the transportation by air of t between points not prescribed in certifi of public convenience and necessity i by the Civil Aeronautics Board and hel the air carrier; from the performance of craft charter services; and from the perf ance of other air transportation service constituting an integral part of services formed pursuant to published schedules with the Civil Aeronautics Board. Fl performed as extra sections of flights formed pursuant to published schedules not be included in this subclassification in subclassification 3100 Scheduled Ser 4900 Nontransport Revenues.

This classification is prescribed fo air carrier groups and shall includ revenues, grants or aids for provi air transportation facilities, but no direct payment for the carriage of t fic, and all revenues and fees, less penses directly associated with the formance of services which grow and are incidental to air transporta services performed by the air carrier shall consist of the following subcla fications:

4100 Federal Subsidy.

This subclassification shall include nues from the United States Governmer direct grants or aids for providing air tr portation facilities. It shall not inc revenues from the carriage of traffic or performance of other specific contrac services for the United States Governm 4600 Incidental Revenues-Net.

(a) This subclassification shall ind net revenues from services which grow and are incidental to the air transporta services performed by the air carrier.

(b) This subclassification shall ind revenues, less related expenses, from those services which are performed as incidental adjunct to air transportation ices and which provide improved utiliza of plant and organization required for performance of air transportation serv Revenues and expenses related to service a magnitude or scope beyond an incide adjunct to air transportation services not be included in this subclassifica Revenues and expenses applicable to services shall be included in profit and classification 8100 Nonoperating Income Expense-Net, and the accounting mod to conform with that of a nontransport sion whether or not the service is organ as a nontransport division.

e) This subclassification shall embrace expense items directly identified with cicular incidental services performed as as amounts representing increases in Es incurred in common with the air transservice, to the extent such increases refrom the added incidental services, as as a pro rata share of the costs incurred che air carrier in operating facilities which used jointly with others. As a general e, this subclassification shall not include se costs, other than joint facilities costs. ch would remain as an essential part of air transport services if the incidental vice were terminated.

d) In accordance with the provisions of Eion 22(d) or 32(d), as applicable, each carrier shall file with the Civil AeronauBoard a statement of accounting proures setting forth methods used in Egned or prorating expenses between incital services and transport operations. R-327, 26 F.R. 4222, May 16, 1961, as ended by ER-483, 32 F.R. 2810, Feb. 11, 7] ction 10-Functional Classification-Operating Expenses of Group Air Carriers

00 Flying Operations.

a) This function shall include exases incurred directly in the in-flight and eration of aircraft expenses

aching to the holding of aircraft and craft operational personnel in readiss for assignment to an in-flight status. (b) This function shall not include penses incurred in repairing, servicing storing aircraft, expenses incurred on e ground in protecting and controlling e in-flight movement of aircraft, or e compensation of ground personnel d other expenses incurred in scheding or preparing aircraft or aircraft erational personnel for flight assignent. Such expenses shall be included function 5400 Maintenance or funcon 6900 General Services Iministration.

100 Maintenance.

and

(a) This function shall include all exnses, both direct and indirect, specifilly identifiable with the repair and keep of property and equipment as ay be required to meet operating and fety standards; in inspecting or checkg property and equipment in accordice with prescribed operational standds; and in polishing or cleaning propty and equipment when such polishing cleaning is not an incidental routine connection with the normal productive se of property and equipment.

(b) This function shall include the cost of direct labor, materials, and outside services and maintenances overhead or other costs specifically associated with maintenance operations regardless of the location at which incurred.

(c) This function shall not include costs incurred in the construction, improvement, or modification of property and equipment even when necessitated to meet new or changed operating or safety standards. Such costs shall be charged to appropriate property and equipment accounts.

(d) Costs incurred by aircraft handling personnel in visual inspection, minor check and servicing of aircraft, while in line service, shall not be included in this function when performed as an incidental routine during the normal productive use of aircraft but shall be included in function 6900 General Services and Administration.

(e) Each Group I air carrier shall maintain the following subfunctions: 5200 Direct Maintenance.

a. This subfunction shall include the costs of labor, materials and outside services consumed directly in periodic maintenance operations and the maintenance and repair of property and equipment, of all types and classes, regardless of the location at which incurred, exclusive of costs specifically identified with maintenance of property and equipment carried in balance sheet accounts 1634 Maintenance and Engineering Equipment and 1640.1 Maintenance Buildings and Improvements which shall be included in subfunction 5300 Maintenance Burden.

b. The cost of direct labor, materials and supplies, as well as outside repairs, used in the maintenance and repair of property and equipment shall be recorded on running job orders or tickets covering repairs and periodic inspections except servicing. Where a number of like items are maintained on a group basis, it will be necessary to maintain only one job order for each group.

as

are

c. When supervisory personnel such crew chiefs, inspectors and foremen engaged in direct labor in connection with equipment maintenance, a proportionate part of their salaries and wages shall be charged to the appropriate direct labor accounts. The cost of transporting property to and from shops for repair and maintenance shall be included as a part of the cost of the materials and supplies used in the repair or maintenance of such property and equipment. Transportation charges, customs and duties, etc; shall be included in the cost of repairs and maintenance operations when made by outside parties.

a. This subfunction shall include all overhead or general expenses which are specifically identified with activities involved in periodic maintenance operations and the maintenance and repair of property and equipment of all types and classes, including the cost of direct labor, materials and outside services identified with the maintenance and repair of property and equipment carried in balance sheet accounts 1634 Maintenance

and Engineering Equipment, and 1640.1 Maintenance Buildings and Improvements. It shall include expenses specifically related to the administration of maintenance stocks and stores, the keeping of pertinent maintenance operations records, and the scheduling, controlling, planning and supervision of maintenance operations.

b. This subfunction shall not include expenses related to financial accounting, purchasing or other overhead activities which are of general applicability to all operating functions. Such expenses shall be included in function 6900 General Services and Administration.

c. This subfunction shall include only those expenses attributable to the current air transport operations of the air carrier. Maintenance burden associated with capital projects of the air carrier, other than overhauls of airframes and aircraft engines, shall be allocated thereto in accordance with the provisions of section 2-9(b). Maintenance burden incurred in common with services to other companies and operating entities shall be allocated thereto on a pro rata basis unless such services are so infrequent in performance or small in volume as to result in no appreciable demands upon the air carrier's maintenance facilities. When overhauls of airframes or aircraft engines are as a consistent practice accounted for on an accrual basis instead of expensed directly, maintenance burden shall be allocated thereto on a pro rata basis. Standard burden rates may be employed for quarterly allocations of maintenance burden provided the rates are reviewed at the close of each fiscal year, at least. When the actual burden rate for the year differs materially from the standard burden rate applied, adjustment shall be made to reflect the actual costs incurred for the full accounting year. Allocations of maintenance burden to capital projects, and service sales to others shall be effected through the individual maintenance burden objective accounts, except that the air carrier may effect such allocations by credits to profit and loss account 77 Uncleared Expense Credits under circumstances in which the use of that account will not undermine the significance of the individual maintenance burden objective accounts in terms of the expense levels associated with the air carrier's air transport services. Maintenance burden allocated to overhauls shall be credited to profit and loss subaccounts 5372.2 or 5372.7 Airworthiness Reserve Charges. In accordance with

the provisions of section 22(d) or 32(d applicable, each air carrier shall file the Civil Aeronautics Board a statemer in which procedures followed alloca maintenance burden between current tr port services, overhauls, capital projects outside services are fully explained. [ER-327, 26 F.R. 4222, May 16, 1961 amended by ER-483, 32 F.R. 2810, Feb 1967]

6900 General Services and Admini

tion.

This function shall include expe incurred on the ground in control and protecting the in-flight moveme aircraft; landing, handling, or servi aircraft on the ground; selling tr portation; servicing and handling tr of all classes; promoting the deve ment of traffic; administering operat generally; and all other expenses otherwise provided for in functions Flying Operations, 5400 Maintena and 7000 Depreciation and Amortizat 7000 Depreciation and Amortizatio

This function shall include all cha to expense to record losses suff through current exhaustion of the s iceability of property and equipment to wear and tear from use and the ac of time and the elements, which are replaced by current repairs as well losses in serviceability occasioned obsolescence, supersession, discove change in popular demand or action public authority. It shall also inc charges for the amortization of capi ized developmental and preopera costs and other intangible assets ap cable to the performance of air tra portation. (See sections 5-5 and 6and 1880.)