How does All County recognize royalty fees as revenue?
All_County Franchise · 2025 FDDAnswer from 2025 FDD Document
f the Statements of Cash Flows, cash and cash equivalents include demand deposits, time deposits, certificates of deposits, and the Company also considers all highly liquid assets purchased with an initial maturity of three months or less to be cash equivalents.
• Revenue Recognition per ASC 606
Royalty fees are a percentage of franchisees weekly gross receipts, as defined in the franchise agreement, and are recorded as revenue when earned. In accordance with ASC 952-605-25, the Company does not recognize income from sales of franchises until after all material services or conditions relating to the sale have been substantially performed or satisfied by the Company, substantially all the initial services of the Company required by the franchise agreement have been performed, and no other material conditions or obligations relating to the determination of substantial performance exist. After both parties sign the contract, the fee is non-refundable. Franchise fees received but not yet recognized as revenue are classified as deferred revenue in accordance with ASC 606.
• Deferred Revenue per ASC 606
Franchise fees are recognized in accordance with ASC 606 and are recognized over a 10-year term. All franchise sales were allowable and recognized under this method.
Source: Item 22 — Contracts (FDD page 43)
What This Means (2025 FDD)
According to All County's 2025 Franchise Disclosure Document, royalty fees, which are a percentage of the franchisee's weekly gross receipts as defined in the franchise agreement, are recorded as revenue when earned. All County adheres to ASC 952-605-25, which dictates that income from franchise sales is not recognized until all material services or conditions relating to the sale have been substantially performed or satisfied by All County. This includes the completion of substantially all initial services required by the franchise agreement and the absence of any other material conditions or obligations affecting substantial performance. Once the contract is signed by both parties, the fee becomes non-refundable. Any franchise fees received but not yet recognized as revenue are classified as deferred revenue, in accordance with ASC 606.
All County recognizes franchise fees over a 10-year term, in accordance with ASC 606. Revenues from royalties are earned each calendar month as a percentage of gross revenues and are payable the following month. For financial statement purposes, All County recognizes income and records the receivable in the accounting period in which it was earned.
For a prospective franchisee, this means that All County's revenue recognition practices align with standard accounting principles. Royalty payments are recognized as revenue by All County in the period they are earned, which is based on the franchisee's gross receipts. The initial franchise fee is deferred and recognized over a 10-year period. This approach ensures that All County's financial statements accurately reflect the timing of when services are provided and revenue is earned, which can provide a more transparent view of the company's financial performance.