What were the prepaid commissions paid but not expensed by Cinnaholic as of December 31, 2022?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
6 4. CONTRACT LIABILITIES AND CONTRACT ASSETS
In compliance with the Financial Accounting Standards Board ("FASB") new accounting standards for revenue recognition ("Topic 606"), the Company records its non-refundable franchise fees, net of amounts earned based on allowable direct services, as deferred revenues, to be
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 61)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, the prepaid commissions paid but not expensed as of December 31, 2022, were $975,886. These are commissions Cinnaholic has already paid but hasn't yet recognized as an expense on its income statement.
This figure relates to franchise sales commissions, which Cinnaholic amortizes over the life of the franchise agreement. Instead of expensing the entire commission in the year it's paid, Cinnaholic spreads the expense out over the term of the franchise agreement. This accounting practice provides a more accurate matching of revenues and expenses.
For a prospective Cinnaholic franchisee, this information provides insight into how Cinnaholic manages its finances and recognizes expenses. It demonstrates that Cinnaholic uses accrual accounting methods, which are standard practice for established franchisors. Understanding these accounting practices can help franchisees better assess the financial health and stability of the Cinnaholic franchise system.