What is the first step Carbones Pizzeria takes to determine revenue recognition?
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 outlines a five-step process for revenue recognition. The initial step involves identifying the contract, or contracts, with customers. This foundational step is crucial as it sets the stage for determining how revenue will be recognized throughout the duration of the agreement.
Following the identification of the contract, Carbones Pizzeria proceeds to identify the performance obligations within the contract. This involves pinpointing the specific goods or services that the company has promised to deliver to the customer. Once these obligations are clearly defined, the company determines the contract price, which is the total amount of consideration that Carbones Pizzeria expects to receive in exchange for fulfilling the performance obligations.
After determining the contract price, Carbones Pizzeria allocates this price to each of the identified performance obligations. This allocation is based on the relative standalone selling prices of the goods or services promised in the contract. Finally, revenue is recognized when, or as, Carbones Pizzeria satisfies each performance obligation. This means that revenue is recorded as the goods or services are transferred to the customer, reflecting the company's fulfillment of its contractual duties.
This detailed approach to revenue recognition ensures that Carbones Pizzeria accurately reflects its financial performance and complies with accounting standards. For a prospective franchisee, understanding these steps is important as it provides insight into how the franchisor manages and reports its revenue, which can be indicative of the overall financial health and stability of the franchise system.