What are the five steps Carbones Pizzeria uses to recognize revenue from contracts with customers?
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 recognizes revenue when control of their products or services is transferred to customers, reflecting the consideration they expect to receive. This process is broken down into five key steps. These steps are crucial for Carbones Pizzeria to accurately report its financial performance and ensure compliance with accounting standards.
The first step involves identifying the contract or contracts with customers, which establishes the agreement for providing goods or services. Next, Carbones Pizzeria identifies the performance obligations within each contract, detailing what they are committed to deliver. The third step is determining the contract price, which is the amount Carbones Pizzeria expects to receive in exchange for fulfilling the performance obligations.
Following the determination of the contract price, Carbones Pizzeria allocates this price to each performance obligation outlined in the contract. This allocation ensures that revenue is recognized appropriately as each obligation is fulfilled. Finally, Carbones Pizzeria recognizes revenue when, or as, it satisfies each performance obligation. This means that revenue is recorded as the goods or services are delivered to the customer, aligning revenue recognition with the actual transfer of value. These steps ensure that Carbones Pizzeria adheres to standard accounting practices for revenue recognition.