In the context of Bumper Man's financial statements, what is the role of management in relation to estimates and assumptions?
Bumper_Man Franchise · 2025 FDDAnswer from 2025 FDD Document
remain subject to examination by the Internal Revenue Service. Management believes there is no material exposure for any tax position taken by the Company for those open years.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Bad Debts
The Company uses the reserve for bad debt method of valuing doubtful accounts receivable which is based on historical experience, coupled with a review of the current status of existing receivables. The balance of the reserve for doubtful accounts, deducted against trade accounts receivable to properly reflect the realizable value is $159,129 at December 31, 2024, $129,645 at December 31, 2023 and $120,787 at December 31, 2022.
Depreciation and Amortization
Depreciation is provided principally on the straight line method over the estimated useful life of the assets, which are generally from two to five years. Amortization is provided on the straight line method over the estimated useful life of the asset of 15 years. Depreciation and amortization for the year ended December 31, 2024 is $25,791, December 31, 2023 is $40,880 and $42,763 for the year ended December 31, 2022.
Advertising
The Company expenses advertising as incurred.
Source: Item 23 — RECEIPTS (FDD pages 45–180)
What This Means (2025 FDD)
According to Bumper Man's 2025 Franchise Disclosure Document, management plays a crucial role in the preparation of the company's financial statements. Specifically, management is responsible for making estimates and assumptions that affect the reported amounts and disclosures within these statements. This is a standard practice in accounting, as many financial figures are not exact and require some level of judgment. The FDD notes that actual results could differ from these estimates.
This reliance on estimates and assumptions has implications for prospective Bumper Man franchisees. While the financial statements provide a picture of the company's financial health, it's important to recognize that these figures are not definitive. Factors such as the valuation of doubtful accounts receivable, which relies on historical experience and a review of current receivables, involve management's judgment. The balance of the reserve for doubtful accounts was $159,129 as of December 31, 2024; $129,645 as of December 31, 2023; and $120,787 as of December 31, 2022.
Furthermore, the Independent Auditor's Report included in the FDD emphasizes management's responsibility for the fair presentation of the financial statements. This includes the design, implementation, and maintenance of internal controls relevant to ensuring the statements are free from material misstatement. The auditor's role is to evaluate the reasonableness of significant accounting estimates made by management. Therefore, while an audit provides assurance, it is still based on management's underlying estimates and assumptions.
In summary, prospective franchisees should understand that Bumper Man's financial statements are prepared using management's best judgment and estimates, which are then reviewed by an independent auditor. While this is a normal accounting practice, it introduces an element of uncertainty, and actual results may vary. Therefore, it is prudent for potential franchisees to carefully review the financial statements, understand the key assumptions, and consider seeking professional financial advice.