How does Closet Storage Concepts recognize contract liabilities as revenue?
Closet_Storage_Concepts Franchise · 2025 FDDAnswer from 2025 FDD Document
ch is currently 10 years. There are currently no unearned initial fee revenues as management has determined that all performance obligations have been satisfied.
Corporate‐owned Stores Revenue
The Company receives payments from customers based on a billing schedule as established in our contracts. Contracts typically call for a deposit of 50% of the contract value at acceptance of an order and the remaining balance upon installation of the product. Contract asset relates to our conditional right to consideration for our completed performance under the contract. Contract receivables are recorded when the right to consideration becomes unconditional. As of December 31, 2024, there was $17,546 of contract receivables, which are included in accounts receivable. Contract liability relates to payments received in advance of performance under the contract. Contract liabilities are r
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 59)
What This Means (2025 FDD)
According to Closet Storage Concepts' 2025 Franchise Disclosure Document, contract liabilities, which arise from payments received in advance of performing services under a contract, are recognized as revenue as, or when, Closet Storage Concepts performs the services outlined in the contract. This accounting practice applies to the revenue generated by Closet Storage Concepts' corporate-owned stores.
Specifically, Closet Storage Concepts' contracts with customers typically require a deposit of 50% of the contract value upon acceptance of the order, with the remaining balance due upon installation of the product. The initial deposit creates a contract liability because Closet Storage Concepts has received payment but has not yet completed the installation. As Closet Storage Concepts fulfills its obligations by installing the product, the contract liability is reduced, and a corresponding amount is recognized as revenue.
For prospective franchisees, this means that Closet Storage Concepts recognizes revenue for its corporate stores only upon completion of the work. As of December 31, 2024, Closet Storage Concepts had $85,097 of deferred revenue related to services to be performed in 2025. This deferred revenue represents the contract liabilities that will be recognized as revenue in the future as Closet Storage Concepts completes its performance obligations under the related contracts. This accounting method ensures that revenue is recognized in the period when the services are actually provided, aligning with standard accounting principles.