What factors does Carbones Pizzeria's management consider when analyzing past due balances?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
three months or less to be cash equivalents. There were no cash equivalents at October 31, 2024.
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.
The Financial Accounting Standards Board ("FASB") issued guidance FASB Accounting Standards Codification ("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.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, the management considers several factors when analyzing past due balances from franchisees. Royalty fees are due on the first day of each week based on the prior week's sales, while advertising fee royalties are due on Tuesday of each week for the previous week's sales. If these payments are not received on time, Carbones Pizzeria's management increases its scrutiny and may charge interest up to 12% annually.
To determine the allowance for expected credit losses, Carbones Pizzeria's management relies on its best estimate of probable credit losses within existing accounts receivable. This involves periodically reviewing the allowance for expected credit losses. The determination is based on historical experience, an analysis of individual past due balances, current conditions, and reasonable and supportable forecasts.
Furthermore, if Carbones Pizzeria's management believes that a receivable is unlikely to be recovered, it is charged off against the allowance. For the year ending October 31, 2024, the allowance for credit losses for accounts receivable was $175,595. For the year ended October 31, 2023, the allowance for credit losses for accounts receivable amounted to $109,133. As of January 1, 2023, accounts receivable was $232,832. This comprehensive approach helps Carbones Pizzeria manage and account for potential credit losses from franchisees.