According to Cinnaholic's accounting policies, when are revenues recognized?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
Basis of Accounting-The accompanying financial statements have been prepared on an accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to receipt or disbursement of funds.
Franchise Arrangements-The Company's franchise arrangements generally include a license which provides for payments of initial fees as well as continuing royalties to the Company based upon a percentage of sales. Under this arrangement, franchisees are granted the right to operate a Cinnaholic bakery for a specified number of years.
3. REVENUE RECOGNITION
The Company records revenue in accordance Accounting Standards Board ("FASB") and Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). The transaction price attributable to performance obligations are recognized as the performance obligations are satisfied. The portion of the franchise fee, if any, that is not attributable to a distinct performance obligation are amortized over the life of the related franchise agreements. Commission paid for franchises are amortized over the life of the franchise agreement. The company adopted ASC-606 and ASU 2021-02 using the modified retrospective method starting with January 1, 2020.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 61)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, the company adheres to the accrual method of accounting. This means Cinnaholic recognizes revenues when they are earned, irrespective of when the cash is received. Similarly, expenses are recognized when a liability is incurred, regardless of when the funds are disbursed. This is a standard accounting practice, ensuring that financial statements accurately reflect the economic activities of the company during a specific period.
Cinnaholic records revenue in accordance with Accounting Standards Board ("FASB") and Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). The transaction price attributable to performance obligations are recognized as the performance obligations are satisfied. The portion of the franchise fee, if any, that is not attributable to a distinct performance obligation are amortized over the life of the related franchise agreements. Commission paid for franchises are amortized over the life of the franchise agreement. The company adopted ASC-606 and ASU 2021-02 using the modified retrospective method starting with January 1, 2020.
For Cinnaholic franchisees, this accounting policy has implications for how franchise fees and royalties are treated. Initial franchise fees, net of amounts earned based on allowable direct services, are recorded as deferred revenues and recognized over the life of the franchise agreement. Continuing royalties, which are based on a percentage of sales, are recognized as revenue as they are earned. This approach ensures that revenue recognition aligns with the delivery of services and the ongoing support provided to franchisees.