What was the cumulative effect of the change in accounting principle for Chem Dry?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
| Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Total | |
|---|---|---|---|---|
| Balance - January 1, 2021 | $ 5 | $ 114,238 | $ 4,841 | $ 119,084 |
| Consolidated net income | - | - | 2,941 | 2,941 |
| Balance - December 31, 2021 | 5 | 114,238 | 7,782 | 122,025 |
| Consolidated net loss | - | - | (6,330) | (6,330) |
| Balance - December 31, 2022 - As restated | 5 | 114,238 | 1,452 | 115,695 |
| Cumulative effect of change in accounting | - | - | (1,035) | (1,035) |
| principle (Note 4) |
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem Dry's 2024 Franchise Disclosure Document, the cumulative effect of a change in accounting principle resulted in a decrease of $1,035. This adjustment is related to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, which concerns the measurement of credit losses on financial instruments. The company adopted this ASU using the modified retrospective method as of January 1, 2023.
Specifically, the change affected the retained earnings. The balance as of December 31, 2022, was restated to reflect this change. Without this adjustment, the retained earnings would have been higher by the amount of the adjustment.
For a prospective Chem Dry franchisee, this indicates a change in how Chem Dry accounts for potential credit losses from receivables. While a $1,035 adjustment may seem small, it reflects a more conservative approach to financial reporting, which could impact how Chem Dry assesses and manages its financial assets. Franchisees may want to understand how this accounting change affects their financial interactions with Chem Dry, particularly concerning payment terms or financing options.