What accounting principles must Chocolate Bash's financial statements adhere to?
Chocolate_Bash Franchise · 2024 FDDAnswer from 2024 FDD Document
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). As a result, the Company records revenue when earned and expenses when incurred. The Company has adopted the calendar year as its basis of reporting.
Use of Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities and other items, as well as the reported revenues and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and any cash equivalents include all cash balances, and highly liquid investments with maturities of three months or less when purchased.
Franchisee Receivables
The Company's franchisee receivables primarily result from initial franchise fees, royalty fees, brand development contributions and training fees charged to franchisees. Timing of revenue recognition may be different from the timing of invoicing to customers. The Company records an accounts receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized after invoicing. The Company reports these receivables at net realizable value.
Management determines the allowance for doubtful accounts based on historical losses, current expectations, and economic conditions. On a continuing basis, management analyzes delinquent accounts receivable and, once these accounts receivable are determined to be uncollectible, they are written off through a charge against an existing allowance account. The allowance account is reviewed regularly and adjusted against earnings as appropriate.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 38)
What This Means (2024 FDD)
According to Chocolate Bash's 2024 Franchise Disclosure Document, the company's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, also known as US GAAP. This means Chocolate Bash records revenue when it is earned and expenses when they are incurred, following the calendar year for reporting purposes.
Preparing financial statements under US GAAP requires Chocolate Bash's management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates can influence the overall financial picture presented. Actual results may differ from these estimates, introducing a degree of uncertainty into the financial reporting.
Furthermore, Chocolate Bash's accounting policies include specific guidelines for items such as cash and cash equivalents, which include all cash balances and highly liquid investments with maturities of three months or less. Franchisee receivables, which primarily come from initial franchise fees, royalty fees, brand development contributions, and training fees, are reported at net realizable value. The company also has policies for fixed assets and depreciation, although the depreciation methods used for tax returns may differ from those generally accepted under US GAAP, with the effects of these differences not fully determined in the financial statements.