How does Carls expense advertising costs for company-operated restaurants' contributions to the Carl's Jr. Fund and the Hardee's Funds?

According to Carls's 2024 Franchise Disclosure Document, advertising costs for company-operated restaurants' contributions to the Carl's Jr. Fund and the Hardee's Funds are expensed as the company-operated restaurants' revenue is earned. This is because Carls is obligated to share ratably in the cost of the related advertising programs.

This means that as Carls's company-operated restaurants generate revenue, a portion of that revenue is immediately recognized as an advertising expense. This accounting practice aligns the recognition of advertising expenses with the revenue they are intended to generate. It also reflects the ongoing obligation Carls has to contribute to these advertising funds.

In contrast, the cost of local and incremental advertising that is not funded by the Carl's Jr. Fund or the Hardee's Funds is expensed as incurred. This implies that these advertising costs are recognized as expenses at the time they are actually paid or when the liability to pay them arises. This difference in treatment suggests that Carls views contributions to the Carl's Jr. Fund and Hardee's Funds as integral to its overall revenue generation strategy, justifying the ratable expense recognition.