What accounting standard did Chem Dry adopt as of January 1, 2023, and what is its subject?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
ar Ended December 31, 2022**
| December 31 | | Amount | |---|---|---| | 2024 | $ | 1,199 | | 2025 | | 1,213 |
December 31, 2023, 2022, and 2021 (000s omitted)
Note 3 - Prior Period Adjustment (Continued)
Balance Sheet December 31, 2022
| Long-term | | |---|---| | obligations under | | | operating leases | $2,166 | As a result of the prior period adjustment, retained earnings as of December 31, 2022 decreased from $4,558, as originally reported, to $1,452.
Note 4 - Adoption of New Accounting Pronouncement
As of January 1, 2023, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, *Financial Instruments
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem Dry's 2024 Franchise Disclosure Document, as of January 1, 2023, the company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. This new accounting standard includes changes to the accounting and measurement of financial assets, specifically impacting Chem Dry's accounts receivable and notes receivable.
The adoption of this ASU reflects Chem Dry's current estimate of all expected credit losses, utilizing reasonable and supportable forecasts. Chem Dry implemented the ASU using the modified retrospective method starting January 1, 2023.
The change in accounting principle resulted in a decrease in retained earnings as of January 1, 2023, from $1,452 to $417. This adjustment indicates that Chem Dry recognized a more conservative estimate of potential credit losses on its financial instruments, which is a crucial factor for prospective franchisees to consider when evaluating the company's financial health and stability.