What must Carbones Pizzeria do after determining the contract price?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
Revenue is recognized when control of the promised products or services are transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to for those products and services. In general, the Company determines revenue recognition through the following steps:
- · Identification of the contract, or contracts, with customers;
- · Identification of the performance obligation(s) in the contract;
- · determination of the contract price;
- · Allocation of the transaction price to the performance obligations in the contract;
- · Recognition of 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, the company follows a five-step process for revenue recognition. After determining the contract price, Carbones Pizzeria must allocate the transaction price to the performance obligations in the contract. Following this allocation, the company recognizes revenue when, or as, it satisfies a performance obligation.
In simpler terms, once Carbones Pizzeria knows the total price of the services or products they've agreed to provide, they need to break down that total price and assign portions of it to each specific task or deliverable they've promised in the agreement. This is a standard accounting practice to accurately reflect when the company has fulfilled its obligations and earned revenue.
For a prospective franchisee, this means that the initial franchise fee and ongoing royalties paid to Carbones Pizzeria are not immediately recognized as revenue by the company. Instead, these fees are recognized over the term of the franchise agreement, which is typically 10 years. This approach aligns the revenue recognition with the period during which the franchisee benefits from the Carbones Pizzeria franchise system, including the use of the Carbone's Pizzeria name and menu.