Has Cinch I.T. established an allowance for credit losses?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
uld differ from those estimates.
Cash
Cash includes all cash balances and highly liquid investments with an initial maturity of three months or less.
Receivables - Trade
The Company carries its trade receivables at cost. On a periodic basis, management evaluates its trade receivables and establishes an allowance for credit losses when deemed necessary. The Company's policy is to not accrue interest on trade receivables. An allowance for credit losses is an estimate based upon historical account Write-off trends, facts about the current financial condition of the debtor, forecasts of future operating results based upon current trends and macroeconomic factors. Credit quality is monitored through the timing of payments compared to payment terms and known facts regarding the financial condition of debtors. Accounts receivable balances are charged
| CINCH I.T. FRANCHISED BUSINESSES | DEVELOPMENT AREA INCLUDES THE FOLLOWING DESIGNATED TERRITORIES: | |---|---| | Franchise # 1 | Designated Territory # 1: | | Franchise # 2 | Designated Territory # 2: | | | | | | | | | | | | |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
The Company accounts for revenue from franchise fees using the accounting method prescribed under FASB ASC 606. "Revenue from Contracts with Customers." ASC 606 provides that revenues are to be recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration expected to be received for those goods or services. Initial franchise fees are recognized as the Company satisfies the performance obligation over the franchise term, which is 5 years. Payment of the initial franchise fee is due at the signing of the franchise agreement. Revenue from franchise sales for the year ended December 31, 2023 and 2022 totaled $23,250 and $23,000, respectively. Royalties and advertising fees are based on a percent of sales and are recognized at the same time that the underlying sales occur. Training and annual conference fees are recognized as the revenues are carned.
Marketing
The Company expenses marketing costs as they are incurred. Marketing costs amounted to $150,152 and $146,870 for the years ended December 31, 2023 and 2022, respectively.
Source: Item 23 — RECEIPTS (FDD pages 60–269)
What This Means (2024 FDD)
According to Cinch I.T.'s 2024 Franchise Disclosure Document, Cinch I.T. carries its trade receivables at cost and management periodically evaluates these receivables to determine if an allowance for credit losses is necessary. This allowance is an estimate based on historical write-off trends, the financial condition of debtors, forecasts, and macroeconomic factors. Cinch I.T. monitors credit quality by assessing payment timing relative to terms and known debtor financial conditions. Accounts receivable balances are charged.
Cinch I.T. adopted FASB ASU 2016-13 on January 1, 2023, which modifies how expected credit losses on financial instruments are measured. This requires using the current expected credit loss (CECL) model to estimate lifetime expected credit losses and record an allowance. The CECL framework is expected to result in earlier recognition of credit losses, influenced by the composition and quality of Cinch I.T.'s financial instruments, economic conditions, and forecasts.
While the adoption of this standard did not materially impact Cinch I.T.'s financial statements, it changed how the allowance for credit losses is determined. However, Cinch I.T. has not established an allowance for credit losses because management has determined that the potential for credit losses is not material to the financial statements. This means that as of the FDD date, Cinch I.T. does not consider potential credit losses from outstanding receivables to be significant enough to warrant setting aside a specific allowance.