How does Carbones Pizzeria's management determine the allowance for expected credit losses?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
ounts receivable. 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 believes it is probable a receivable will not be recovered, i
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, the company's management determines the allowance for expected credit losses based on their best estimate of probable credit losses within their existing accounts receivable. This involves a periodic review of the allowance. Management calculates the allowance using historical experience and by analyzing individual past-due balances to assess collectability, considering current conditions and reasonable forecasts.
This process is influenced by Financial Accounting Standards Board (FASB) guidance, specifically FASB ASC 326, which shifted the approach from an incurred loss model to an expected loss model. This standard requires disclosures that provide information for analyzing the company's exposure to credit risk and the measurement of credit losses. The financial assets subject to this guidance are trade accounts receivable.
For the year ended October 31, 2024, the allowance for credit losses for accounts receivable amounted to $175,595. If management believes that a receivable will not be recovered, it is charged off against the allowance. This indicates that Carbones Pizzeria actively manages its accounts receivable and makes provisions for potential losses based on a combination of historical data and forward-looking assessments.