Under which accounting standard does Bath Tune Up recognize revenue?
Bath_Tune_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company follows Accounting Standards Codification ("ASC") 606, Revenue from Contract with Customers, ("ASC 606") for revenue recognition. The core principle of ASC 606 is built on the contract between a vendor and a customer for the provision of goods and services and attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. (See Note 10)
The Company has elected the practical expedient offered under Accounting Standards Update ("ASU") 2021-02, Franchisors – Revenue from Contracts with Customers - Private Company Accounting Alternative. The Company adopted the Franchisors – Revenue from Contracts with Customers - Private Company Accounting Alternative (the "Accounting Alternative") effective January 1, 2021. The Accounting Alternative permits the Company to account for pre-opening services provided to a franchisee as distinct from the franchise license and to recognize the pre-opening services as a single performance obligation. Upon the adoption of this Accounting Alternative, revenue and related expenses for pre-opening services provided to a franchisee are deferred until the franchisee and franchisee personnel complete their initial training, typically within six months of entering into the franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 51–52)
What This Means (2025 FDD)
According to Bath Tune Up's 2025 Franchise Disclosure Document, the company follows Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, for revenue recognition. The core principle of ASC 606 is based on the contract between a vendor and a customer for the provision of goods and services. It aims to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled.
To achieve this, ASC 606 requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Bath Tune Up has elected the practical expedient offered under Accounting Standards Update (ASU) 2021-02, Franchisors – Revenue from Contracts with Customers - Private Company Accounting Alternative.
This Accounting Alternative permits Bath Tune Up to account for pre-opening services provided to a franchisee as distinct from the franchise license and to recognize the pre-opening services as a single performance obligation. Upon adopting this alternative, revenue and related expenses for pre-opening services provided to a franchisee are deferred until the franchisee and franchisee personnel complete their initial training, typically within six months of entering into the franchise agreement. This means that Bath Tune Up does not immediately recognize revenue from pre-opening services but waits until the franchisee's training is complete, which usually occurs within six months of the franchise agreement.