How does Carbones Pizzeria handle the write-off of accounts receivable?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
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Cash and Cash Equivalents
The Company holds cash and cash equivalents at times may exceed federal insurance limits; however, the Company does not anticipate any losses related to this balance.
The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents.
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.
As of January 1, 2023, accounts receivable was $232,832.
In June 2016, the FASB issued guidance (FASB 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. The Company adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the financial statements and primarily resulted in enhanced disclosures only.
The Company's allowance for expected credit losses, is Management's best estimate of the amount of probable credit losses in its existing accounts receivable. The Company reviews its allowance for expected credit losses periodically. Management determines an allowance based on historical experience and then analyzes individual past due balances for collectability based on current conditions and reasonable and supportable forecasts.
In addition, if Management believe
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, the company addresses accounts receivable and potential credit losses as part of its accounting policies. Royalty and advertising fee receivables from franchisees are due weekly, with late payments subject to increased scrutiny and potential interest charges up to 12% annually.
Carbones Pizzeria adopted FASB ASC 326 on January 1, 2023, which shifted the model for measuring credit losses to an expected loss model. This requires enhanced disclosures to help financial statement users analyze the company's exposure to credit risk. The company's allowance for expected credit losses represents management's best estimate of probable credit losses within its existing accounts receivable. This allowance is periodically reviewed, considering historical experience, current conditions, and reasonable forecasts.
Furthermore, Carbones Pizzeria's policy states that if management believes a receivable is unlikely to be recovered, it is charged off against the allowance for credit losses. For the year ended October 31, 2023, the allowance for credit losses for accounts receivable amounted to $109,133. This indicates that Carbones Pizzeria actively manages and accounts for potential credit losses from franchisees, which could impact the overall financial health of the franchise system.