How does Burros Fries recognize revenue from the sale of individual franchises?
Burros_Fries Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company prepares its financial statements following the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (GAAP). Under this method, revenues are recorded in the period in which they are earned rather than when received and expenses are recorded in the period incurred rather than when paid. The financial statements have been prepared using historical cost and fair value bases as discussed in the applicable accounting policies.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 53)
What This Means (2024 FDD)
According to the 2024 Burros Fries Franchise Disclosure Document, the company records revenues following the accrual basis of accounting, in accordance with generally accepted accounting principles (GAAP). This means that Burros Fries recognizes revenue when it is earned, rather than when the payment is received. Similarly, expenses are recorded when they are incurred, not when they are paid.
This accounting method is standard practice, ensuring that financial statements accurately reflect the company's financial performance during a specific period. This approach provides a more accurate picture of the company's financial health by matching revenues with the expenses incurred to generate those revenues, regardless of when cash changes hands.
For a prospective Burros Fries franchisee, this information is primarily relevant in understanding how the franchisor manages its finances and reports its financial performance. It assures that Burros Fries adheres to standard accounting practices, which promotes transparency and reliability in their financial reporting.