How does Bath Tune Up account for the production costs of advertising?

According to Bath Tune Up's 2025 Franchise Disclosure Document, the company expenses the production costs of advertising the first time the advertising takes place. For the year ending December 31, 2022, Bath Tune Up incurred $345,219 in consumer and franchise advertising costs. These costs are included in selling and advertising expenses on the statement of earnings.

Bath Tune Up also receives advertising funds from franchisees to provide national and regional advertisements. These funds are sales-based and are restricted and segregated. The sales-based advertising fee is considered variable consideration and is recognized as revenue as sales are earned by the franchisees. These fees qualify under the royalty constraint exception and do not require an estimate of future transaction price.

Advertising contributions received from franchisees are presented as franchise advertising fee revenue. All expenses of the advertising fund are recorded within franchise expenses, which increases both revenues and expenses on the statement of earnings. There is no change to the balance sheet unless the advertising was underspent. If advertising is underspent, the advertising fund will accrue the difference between collections received and the amount owed. Bath Tune Up's franchise agreements allow the company to reimburse itself for reasonable costs out of the advertising deposits as compensation for its administration over the accounts.