What was the change in accounts receivable for Carbones Pizzeria?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
is balance.
The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable for royalty fees from franchisees are due on or before the first day of each week for the sales during the preceding week and accounts receivable for advertising fee royalties from franchisees are due on or before Tuesday of each week for the sales during the preceding week. All receivables not received on time receive additional scrutiny from management and may be charged interest at rates up to 12% annually.
As of January 1, 2023, accounts receivable was $232,832.
In June 2016, the FASB issued guidance (FASB ASC 326) which changed how entities measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The most significant change in this standard is a shift from the incurred loss model to the expected loss model. Under the standard, disclosures are required to provide users of the financial statements with useful information in analyzing an entity's exposure to credit risk and the measurement of credit losses. Financial assets held by the Company that are subject to the guidance in FASB ASC 326 are trade accounts receivable. The Company adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the financial statements and primarily resulted in enhanced disclosures only.
The Company's allowance for expected credit losses, is Management's best estimate of the amount of probable credit losses in its existing accounts receivable. The Company reviews its allowance for expected credit losses periodically. Management determines an allowance based on historical experience and then analyzes individual past due balances for collectability based on current conditions and reasonable and supportable forecasts.
In addition, if Management believe
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
Based on the 2025 Franchise Disclosure Document, as of January 1, 2023, Carbones Pizzeria had accounts receivable of $232,832. The FDD does not provide the accounts receivable balance for any subsequent date, so the change in accounts receivable cannot be calculated from this document. The FDD does state that accounts receivable for royalty fees from franchisees are due weekly, and interest may be charged on late payments. Additionally, the allowance for credit losses for accounts receivable amounted to $109,133 for the year ended October 31, 2023.
For a prospective franchisee, this indicates that Carbones Pizzeria actively manages its accounts receivable and has a system in place for dealing with late payments. The allowance for credit losses suggests that Carbones Pizzeria acknowledges that not all receivables will be collected. However, without knowing the accounts receivable balance for the end of 2023 or 2024, it is impossible to determine the trend in accounts receivable.
To gain a clearer picture, a potential franchisee should ask Carbones Pizzeria for the accounts receivable balances as of October 31, 2023, and October 31, 2024. This would allow them to calculate the change in accounts receivable and assess the company's ability to collect payments from franchisees. Understanding the accounts receivable trend is crucial for evaluating the financial health and stability of Carbones Pizzeria.