When does Carbones Pizzeria recognize revenue?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
easehold improvements | 15-39 |
Notes to Consolidated Financial Statements As of and For the Year ended October 31, 2022
A. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
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.
The following policies apply to the Company's major categories of revenue transactions:
Royalties
The Company receives a service fee based on a percentage of sales each week from the franchised locations as royalties. Revenue from royalties is recognized each week based on a percentage of reported franchisee sales.
Initial and Renewal Franchise Fees
When an individual franchise is sold, the Company agrees to provide certain services to the franchisee. Generally, these services include assistance in site selection, training personnel, implementation of an accounting system, and design of a quality control program. The Company's initial and renewal franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement. As such, these franchise fees are recognized over the contractual term of the franchise agreement. The contract term for the initial franchise agreements is 10 years commencing on the earlier of the date when the restaurant opens or twelve months following the date the franchise agreement was signed.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to the 2025 Carbones Pizzeria Franchise Disclosure Document, revenue recognition depends on the type of income. Carbones Pizzeria recognizes revenue when control of products or services are transferred to customers, reflecting the consideration they expect to receive. The company determines revenue recognition through identifying contracts, performance obligations, determining the contract price, allocating the transaction price to performance obligations, and recognizing revenue when a performance obligation is satisfied.
For royalties, which are a percentage of sales from franchised locations, Carbones Pizzeria recognizes revenue each week based on the reported franchisee sales. For company-owned restaurant sales, revenue is recognized at the time of sale. Initial and renewal franchise fees are recognized over the contractual term of the franchise agreement, which is typically 10 years. These fees are tied to services like site selection assistance, personnel training, accounting system implementation, and quality control program design.
For prospective franchisees, this means that the initial franchise fee you pay to Carbones Pizzeria will not be recognized by them as immediate revenue. Instead, it will be recognized gradually over the 10-year term of your franchise agreement. Similarly, Carbones Pizzeria will recognize a percentage of your weekly sales as royalty revenue. This accounting practice is common in franchising, as the initial fee compensates the franchisor for the initial setup and ongoing support provided to the franchisee.