How does Burros Fries recognize revenue from the sales of individual franchises?
Burros_Fries Franchise · 2024 FDDAnswer from 2024 FDD Document
Basis of Presentation
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.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reporting amounts of assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ from those estimates.
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 for franchise businesses, as it provides a more accurate picture of the company's financial performance over time. For a potential Burros Fries franchisee, this indicates that the franchisor's financial statements reflect a recognized and consistent approach to revenue recognition.
Furthermore, the FDD emphasizes that the financial statements are prepared using historical cost and fair value bases, as discussed in the applicable accounting policies. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as revenues and expenses. These estimates could differ from actual results. Therefore, prospective franchisees should be aware of the estimates and assumptions Burros Fries makes in its financial reporting, as these could impact the perceived financial health of the company.