Where are payments received by Cicis before a restaurant opens recorded?
Cicis Franchise · 2025 FDDAnswer from 2025 FDD Document
-----|---------------|---------------| | | | | | | Revenue recognized at a point in time | | $ 42,474,332 | $ 41,301,256 | | Revenue recognized over time | | 72,368 $ 42,546,700 | 57,395 $ 41,358,651 | | | | | | Impact on payment terms: The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods and services to the customer. Agreements may include initial and renewal franchise fees, development and territory fees and sales-based royalties.
Notes to Combined Financial Statements
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
Initial and renewal franchise fees are recognized as revenue on a straight-line basis over the term of the respective agreement beginning when the restaurant opens, which range from five to ten years.
Source: Item 20 — OUTLETS AND FRANCHISEE INFORMATION (FDD pages 58–64)
What This Means (2025 FDD)
According to Cicis's 2025 Franchise Disclosure Document, payments received before a restaurant opens are recorded as deferred revenue in the combined balance sheets. This applies to initial and renewal franchise fees. These fees are recognized as revenue on a straight-line basis over the term of the agreement, which typically ranges from five to ten years, but only after the restaurant has opened.
This accounting treatment means that Cicis does not immediately recognize these upfront payments as income. Instead, they are held as a liability (deferred revenue) on the balance sheet until the services related to those fees are provided. For a franchisee, this indicates that Cicis's financial statements provide a transparent view of how franchise fees are accounted for, aligning revenue recognition with the delivery of services over the franchise term.
Furthermore, upfront fees paid for development rights are treated similarly. These fees are allocated to each franchised restaurant and are recognized over the contractual term of the franchise agreement once each restaurant is opened. This ensures that revenue is recognized in proportion to the services provided for each specific restaurant under the development agreement.