What specific balance sheet items were affected when Aw adopted ASC-606 and ASU 2021-02?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
t 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
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, the adoption of ASC-606 and ASU 2021-02 impacted two specific items on the company's balance sheet. These accounting standards relate to revenue recognition. Aw adopted these standards using the modified retrospective method starting January 1, 2020.
The first balance sheet item affected was deferred revenue. Upon adopting the new standards, Aw recorded deferred revenue. Deferred revenue represents payments received for goods or services that have not yet been delivered or performed.
The second balance sheet item affected was accumulated retained earnings. The adoption resulted in a cumulative effect that decreased accumulated retained earnings by $58,500. This adjustment reflects the unamortized portion of fees received on behalf of operating franchise agreements at the time of adoption. This means that Aw had previously recognized some revenue that, under the new standards, had to be deferred, hence reducing the retained earnings.