What constitutes a performance obligation in a Carbones Pizzeria customer contract?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company assesses the products or services promised in contracts with customers at contract inception to determine the appropriate amount at which to record revenue which is referred to as a performance obligation. Revenue is recognized when control of the promised products or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for the products or services.
Revenue from contracts with customers is recognized using the following five steps:
- Identify the contract(s) with a customer;
- Identity the performance obligations in the contract;
- Determine the transaction price;
- Allocate the transaction price to the performance obligations in the contract; and
- Recognize revenue when (or as) the Company satisfies a performance obligation.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, a performance obligation in a customer contract is defined as the products or services promised to the customer. Carbones Pizzeria assesses these promised products or services at the beginning of the contract to determine the appropriate amount for recording revenue. Revenue is recognized when control of these products or services is transferred to the customer. This transfer must occur at an amount that reflects the consideration the company expects to receive in exchange for those products or services.
Carbones Pizzeria follows a five-step process for recognizing revenue from contracts with customers. These steps include identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when the company satisfies the performance obligation. This approach ensures that revenue is accurately recorded when the company has fulfilled its promises to the customer.
For a potential Carbones Pizzeria franchisee, understanding these revenue recognition principles is crucial. It dictates how and when sales are recorded, which directly impacts the financial reporting and overall financial health of the franchise. Franchisees should ensure they fully understand these steps and how they apply to their daily operations to maintain accurate financial records and comply with accounting standards.