How are training and annual conference fees recognized as revenue by Cinch I.T.?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
| 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
Source: Item 23 — RECEIPTS (FDD pages 60–269)
What This Means (2024 FDD)
According to Cinch I.T.'s 2024 Franchise Disclosure Document, the company recognizes training and annual conference fees as revenue when they are earned. This means that Cinch I.T. does not recognize these fees as revenue until the training or conference has actually taken place and the service has been provided to the franchisee. This is a common accounting practice that ensures revenue is recognized in the period it is actually earned.
For a prospective Cinch I.T. franchisee, this revenue recognition policy has implications for understanding the company's financial statements. When evaluating Cinch I.T.'s financial performance, it's important to know that training and conference fees collected in advance are initially recorded as deferred revenue. This deferred revenue is then recognized as actual revenue in the period when the corresponding training or conference services are delivered.
This policy also means that Cinch I.T. may collect annual conference registration fees up to one year in advance, invoiced and paid via EFT as part of the franchisee's standard monthly billing. These fees are non-refundable and will be collected even if the franchisee does not attend the conference. The FDD specifies that the conference registration fee is currently up to $700.00.
Overall, the revenue recognition policy for training and annual conference fees is a standard accounting practice. However, franchisees should be aware of the timing of these fees and how they are reflected in Cinch I.T.'s financial statements.