What are the key components of Beauty Bungalows' nature of operations?
Beauty_Bungalows Franchise · 2025 FDDAnswer from 2025 FDD Document
| 7 | 2 |
| Agreements terminated | | | | Agreements, ending | 9 | 2 | | | | | | Franchise agreements | 9 | 2 | | Affiliate owned locations | - | - |
2. Summary of significant accounting policies and nature of operations
Basis of accounting
The accompanying financial statements have been prepared under the 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 disbursement of cash.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period. Actual results could vary from those estimates.
Cash and cash equivalents
Cash and cash equivalents include all cash balances on deposit with financial institutions and highly liquid investments with a maturity of three months or less at the date of acquisition. The Company maintains its cash in bank deposit accounts which could exceed federally insured limits. The Company has not experienced an instance where cash held in the account exceeded insured limits since its inception and has not had losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
2. Summary of significant accounting policies and nature of operations (continued)
Revenue and expenses
The Company recognizes revenue under the guidance of ASC 606 "Contracts with Customers". The Company's revenue is principally generated through franchise agreements executed with the Company's franchisees. Each franchise agreement is comprised of several performance obligations.
The Company identifies those performance obligations, determines the contract price for each performance obligation, allocates the transaction price to each performance obligation and recognizes revenue when the Company has satisfied the performance obligation by transferring control of the good or service to the franchisee.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Beauty Bungalows' 2025 Franchise Disclosure Document, the company's financial statements are prepared using the accrual basis of accounting, following generally accepted accounting principles in the United States. This means revenues are recognized when earned, and expenses are recognized when a liability is incurred, regardless of when cash changes hands. This accounting method provides a more accurate picture of the company's financial performance over time, as it matches revenues with the expenses incurred to generate those revenues.
Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent items. These estimates can influence the reported revenues and expenses during the reporting period, and actual results could differ. For example, estimating the useful life of equipment or the collectability of receivables requires judgment and can impact the financial statements.
Beauty Bungalows recognizes revenue under ASC 606, primarily through franchise agreements. The company identifies performance obligations within these agreements, determines the contract price for each, allocates the transaction price, and recognizes revenue when the obligation is satisfied by transferring control of the service to the franchisee. This involves several pre-opening services, such as site selection assistance, facility preparation, personnel training, and providing operational manuals. The portion of the franchise fee not attributable to a distinct performance obligation is amortized over the life of the franchise agreement. Additionally, the company records an asset for unrealized expenses related to the sale of franchises. For example, as of December 31, 2023, franchise fees and associated costs were not recognized because no locations had opened yet.