For income tax reporting purposes, what basis of accounting does Apricot Lane use?
Apricot_Lane Franchise · 2025 FDDAnswer from 2025 FDD Document
e fee for additional stores for an existing franchisee is $20,000.
Income Taxes
The Company has elected to be taxed as an S corporation for federal income tax and California franchise tax purposes. As a result, the Company does not pay federal corporate tax on its income; instead, the stockholders pay tax on their respective shares of such income. California has adopted similar provisions, except that there is a 1.5% franchise tax assessed on California taxable income and a minimum tax of $800. For income tax reporting purposes, the Company reports income on the cash basis of accounti
Source: Item 23 — RECEIPTS (FDD pages 51–222)
What This Means (2025 FDD)
According to the 2025 Apricot Lane Franchise Disclosure Document, Country Visions, Inc., the franchisor of Apricot Lane, reports income on the cash basis of accounting for income tax purposes. However, the financial statements themselves are prepared using the accrual method of accounting, in accordance with Generally Accepted Accounting Principles (GAAP) in the United States.
The cash basis of accounting recognizes revenue when cash is received and expenses when cash is paid out, regardless of when the transaction occurred. This differs from the accrual method, which recognizes revenue when earned and expenses when incurred, regardless of cash flow. The FDD also states that Country Visions, Inc. has elected to be taxed as an S corporation for federal income tax and California franchise tax purposes, meaning the stockholders pay tax on their respective shares of the income, rather than the company paying federal corporate tax.
For a prospective Apricot Lane franchisee, this means that while the franchisor's financial statements are prepared using the accrual method, their income tax reporting is done on a cash basis. Franchisees should consult with a financial professional to determine the best accounting method for their own business, considering their specific circumstances and tax obligations. Understanding the different accounting methods used by the franchisor and how they might impact your own business is an important part of due diligence.