Under what conditions does All County recognize income from franchise sales?
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, the company adheres to ASC 952-605-25 regarding revenue recognition from franchise sales. All County does not recognize income from franchise sales until all material services or conditions relating to the sale have been substantially performed or satisfied. This means All County must fulfill substantially all initial services required by the franchise agreement. Additionally, there should be no other material conditions or obligations that could affect the determination of substantial performance.
Effectively, All County waits until it has completed its major obligations to a new franchisee before recognizing the franchise fee as income. This approach is common in franchising, as it ensures that the franchisor has provided the necessary support and resources to the franchisee before claiming the revenue.
Furthermore, the FDD states that franchise fees received but not yet recognized as revenue are classified as deferred revenue, in accordance with ASC 606. These franchise fees are then recognized over a 10-year term. This indicates that All County spreads the recognition of the initial franchise fee revenue over the duration of the franchise agreement, which is a standard accounting practice in the franchise industry. Royalties, on the other hand, are recorded as revenue when earned, based on a percentage of the franchisee's weekly gross receipts.