What accounting principles does Aw conform to when preparing financial statements?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
Basis of Accounting-The accompanying financial statements have been prepared on an accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to receipt or disbursement of cash.
3. REVENUE RECOGNITION
The Company records revenue in accordance Accounting Standards Board ("FASB") and Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). The transaction price attributable to performance obligations are recognized as the performance obligations are satisfied. The portion of the franchise fee, if any, that is not attributable to a distinct performance obligation are amortized over the life of the related franchise agreements. The company adopted ASC-606 and ASU 2021-02 using the modified retrospective method starting with January 1, 2020. Upon adoption, the Company recorded deferred revenue, and a cumulative effect to decrease accumulated retained earnings by $58,500 on our Balance Sheet for the unamortized portion of fees received on behalf of the then operating franchise agreements.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, the company prepares its financial statements on an accrual basis, following accounting principles generally accepted in the United States of America. This means that revenues are recognized when earned, and expenses are recognized when a liability is incurred, regardless of when cash changes hands. This is a standard accounting practice ensuring financial statements reflect the true economic activity of the company during a reporting period.
Aw also adheres to specific accounting standards for revenue recognition. The company records revenue in accordance with the Accounting Standards Board (FASB) and Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard dictates that the transaction price is allocated to performance obligations, and revenue is recognized as those obligations are satisfied. If a portion of the franchise fee isn't tied to a specific performance obligation, it is amortized over the life of the franchise agreement.
In practical terms for a prospective Aw franchisee, this means that Aw's financial statements are prepared using widely accepted and consistent methods. The adoption of ASC-606 and ASU 2021-02 using the modified retrospective method starting January 1, 2020, further ensures that Aw's revenue recognition practices are in line with current accounting standards. Upon adoption, the Company recorded deferred revenue, and a cumulative effect to decrease accumulated retained earnings by $58,500 on our Balance Sheet for the unamortized portion of fees received on behalf of the then operating franchise agreements.