How does Clean Your Dirty Face account for accounts receivable?
Clean_Your_Dirty_Face Franchise · 2025 FDDAnswer from 2025 FDD Document
all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are carried at their estimated realizable amount and do not bear interest. Receivables generally consist of royalty revenue, which is based on a percentage of franchise monthly gross sales, and are typically collected the month subsequent to the month in which the royalties are earned.
Allowance for Credit Losses
The allowance for credit losses is calculated on a pooled basis where similar risk characteristics exist. Receivables are evaluated individually when they do not share similar risk characteristics which could exist in circumstances where amounts are considered at risk or uncollectible. The allowance is derived from a review of the Company's historical losses and is adjusted for management's assessment of current conditions, reasonable and supportable forecasts regarding future events, and any other factors deemed relevant by the Company. The Company believes historical loss information is a reasonable starting point in which to calculate the expected allowance for credit losses as the Company's franchisees have remained constant since the Company's inception.
Management has determined that the allowance for credit losses is not material to the financial statements, and therefore the allowance for credit losses is $0 at December 31, 2024 and 2023, respectively.
The Company writes off receivables as a deduction from the allowance for credit losses when there is information that indicates the debtor is facing significant financial difficulty and there is no possibility of recovery. If any recoveries are made from any accounts previously written off, they will be recognized as income or an offset to credit loss expense in the year of recovery, in accordance with the Company's accounting policy election. The total amount of write-offs was immaterial to the financial statements as a whole for the years ending December 31, 2024 and 2023. The amount of credit loss expense was $0 for the years ending December 31, 2024 and 2023.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 54)
What This Means (2025 FDD)
According to Clean Your Dirty Face's 2025 Franchise Disclosure Document, accounts receivable are recorded at their estimated realizable value and do not accrue interest. These receivables primarily consist of royalty revenue, which is calculated as a percentage of the franchisee's monthly gross sales. Typically, Clean Your Dirty Face collects these royalties in the month following the month in which they are earned.
Clean Your Dirty Face also uses an allowance for credit losses, which is calculated on a pooled basis considering similar risk characteristics. Receivables are individually assessed if they don't share similar risk factors, especially when amounts are at risk or potentially uncollectible. This allowance is based on historical losses, adjusted by management's evaluation of current conditions, forecasts, and other relevant factors. However, for the years 2024 and 2023, the allowance for credit losses was determined by management to be $0, indicating that Clean Your Dirty Face did not consider these losses material to their financial statements.
Clean Your Dirty Face writes off receivables when there is evidence that the debtor faces significant financial difficulties and recovery is unlikely. Any subsequent recoveries from these written-off accounts are recognized as income or offset against credit loss expenses in the year of recovery, following the company's accounting policy. The total write-offs were immaterial for the years ending December 31, 2024, and 2023, with credit loss expenses also being $0 for both years. In 2024, Clean Your Dirty Face had accounts receivable of $26,198, compared to $25,964 in 2023. The changes in accounts receivable are also reflected in the cash flow statement, with a decrease of $234 in 2024 and $8,706 in 2023.