Does Big Apple Bagels defer advertising and promotion costs, or are they expensed as incurred?
Big_Apple_Bagels Franchise · 2025 FDDAnswer from 2025 FDD Document
[Item 23: RECEIPTS]
See accompanying notes
Note 1 - Nature of Operations
BAB Systems, Inc. (the "Company") franchises and licenses Big Apple Bagels® ("BAB"), My Favorite Muffin® ("MFM") and SweetDuet Frozen Yogurt & Gourmet Muffins® ("SD") concepts located in the United States. The franchised units operating as "Big Apple Bagels®," featuring daily baked bagels, flavored cream cheeses, premium coffees, gourmet bagel sandwiches and other related products. The BAB units are primarily concentrated in the Midwest and Western United States. The MFM brand consists of units operating as "My Favorite Muffin Gourmet Muffin Bakery™" ("MFM Bakery"), featuring a large variety of freshly baked muffins and coffees and units operating as "My Favorite Muffin Your All-Day Bakery Café®" ("MFM Cafe") featuring these products as well as a variety of specialty bagel sandwiches and related products. Although the Company doesn't actively market Brewster's stand-alone franchises, Brewster's coffee products are sold in most franchised units.
The Company, an Illinois Corporation, incorporated on December 2, 1992, was capitalized with a cash contribution by BAB, Inc. ("Inc"), a publicly traded Company, and was originally established to franchise "Big Apple Bagels®" stores.
Note 2 - Summary of Significant Accounting Policies
Use of 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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Adopted Accounting Pronouncements
Source: Item 23 — RECEIPTS (FDD pages 87–319)
What This Means (2025 FDD)
The 2025 Big Apple Bagels Franchise Disclosure Document does not explicitly state whether advertising and promotion costs are deferred or expensed as incurred. However, Note 2, 'Summary of Significant Accounting Policies,' mentions the use of estimates in preparing financial statements according to generally accepted accounting principles in the United States. This suggests that certain accounting judgments, including those related to advertising and promotion, are made by Big Apple Bagels.
Note 2 also indicates that these estimates can affect the reported amounts of assets, liabilities, contingent items, revenues, and expenses. This implies that the timing of recognizing advertising and promotion expenses could potentially be subject to estimation and could impact the financial statements.
To fully understand Big Apple Bagels's specific accounting practices for advertising and promotion costs, a prospective franchisee should directly ask the franchisor for clarification. Specifically, they should inquire about the policy on deferring or expensing these costs and how it might affect the franchisee's financial reporting and obligations.