How does Carbones Pizzeria handle accounts receivable for royalty fees from franchisees?
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.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, royalty and advertising fees are collected weekly from franchisees. Royalty fees are due on or before the first day of each week, covering sales from the previous week. Advertising fee royalties are due on or before Tuesday of each week, also for the prior week's sales.
Carbones Pizzeria scrutinizes receivables not received on time and may charge interest up to 12% annually on these overdue amounts. The company also uses an allowance for expected credit losses, which is management's best estimate of potential credit losses from accounts receivable.
Management periodically reviews the allowance for expected credit losses, considering historical experience, past due balances, current conditions, and reasonable forecasts to determine the appropriate allowance. If it is probable that a receivable will not be recovered, it is charged off against this allowance. For the year ended October 31, 2024, the allowance for credit losses for accounts receivable amounted to $175,595.