What is the topic number for Revenue Recognition that is superseded by ASU 2014-09 for Carbones Pizzeria?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
Effective November 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2014-09 (Topic 606): Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Topic 605 Revenue Recognition (Topic 605). The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the guidance provides that an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. Topic 606 applies to all contracts with customers, except those that are within the scope of other topics within the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC"). The ASU requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates, and changes in those estimates.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, Accounting Standards Update (ASU) 2014-09 (Topic 606) supersedes the revenue recognition requirements found in Topic 605 Revenue Recognition (Topic 605). This means that Topic 605 is no longer the active standard for revenue recognition.
The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This involves several steps, including identifying the contract, identifying performance obligations, determining the transaction price, allocating the transaction price, and recognizing revenue as obligations are met.
For a prospective Carbones Pizzeria franchisee, this information is relevant for understanding how the franchisor recognizes revenue, which can impact various aspects of the financial relationship between the franchisee and franchisor, including royalty payments and fees. Franchisees should be aware of these accounting standards to better understand the financial statements and reporting practices of Carbones Pizzeria.