Under ASU 2014-09, what are the five steps Ben Jerrys uses to recognize revenue?

According to Ben Jerrys's 2025 Franchise Disclosure Document, revenue recognition follows a five-step model as dictated by ASU 2014-09, Revenue from Contracts with Customers (Topic 606). These steps provide a structured approach to determine when and how revenue should be recognized in the financial statements. For a Ben Jerrys franchisee, understanding these steps is crucial because it dictates how the franchisor accounts for various revenue streams, such as franchise fees, royalties, and advertising fees, which ultimately impacts the franchisor's financial performance.

The five steps Ben Jerrys uses are: first, identifying the contract with the customer; second, identifying the performance obligations in the contract; third, determining the transaction price; fourth, allocating the transaction price to the performance obligations; and fifth, recognizing revenue when (or as) the entity satisfies a performance obligation. In the context of a Ben Jerrys franchise, the 'customer' is typically the franchisee, and the 'contract' is the franchise agreement. The 'performance obligations' refer to the promises Ben Jerrys makes to the franchisee, such as granting the rights to use their intellectual property and providing support services.

The 'transaction price' is the total amount Ben Jerrys expects to receive from the franchisee, including initial franchise fees, ongoing royalties, and advertising contributions. Allocating the transaction price involves assigning a portion of the total revenue to each performance obligation. Revenue is recognized when Ben Jerrys fulfills each performance obligation. For instance, initial franchise fees are recognized over the term of the franchise agreement (typically 10 years), while royalties and advertising fees are recognized as they are earned or received.

This accounting treatment has implications for franchisees. For example, the franchise license granted for each scoop shop represents a single performance obligation. Initial franchise fees are recognized on a straight-line basis over the term of the respective franchise agreement, typically 10 years, from the date the scoop shop opens. This means that Ben Jerrys does not recognize the entire franchise fee as revenue upfront but spreads it out over the life of the agreement. This approach provides a more accurate reflection of when the franchisor is actually delivering value to the franchisee.