When are Coffee News accounts written off?
Coffee_News Franchise · 2025 FDDAnswer from 2025 FDD Document
Effective January 1, 2024, the Company adopted FASB Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which modifies the measurement of expected claims and credit losses on certain financial instruments. Topic 326 requires measurement and recognition of expected versus incurred losses for financial assets held. Financial assets held by the Company that are subject to ASU 2016-13 include franchisee accounts receivable. The adoption of this ASU did not have a material impact on the Company's financial statements.
Source: Item 23 — Receipts (FDD pages 36–118)
What This Means (2025 FDD)
According to Coffee News's 2025 Franchise Disclosure Document, the company has adopted FASB Accounting Standards Update (ASU) 2016-13, which affects how they measure expected credit losses on financial instruments. This update requires Coffee News to measure and recognize expected versus incurred losses for financial assets, including franchisee accounts receivable. The adoption of this ASU did not have a material impact on the company's financial statements.
In simpler terms, Coffee News now uses a method that anticipates potential credit losses on franchisee accounts receivable rather than waiting for those losses to actually occur. This approach is intended to provide a more accurate and forward-looking view of the company's financial health by accounting for potential bad debts before they materialize.
For a prospective Coffee News franchisee, this accounting practice means that Coffee News is proactively managing the risk of unpaid accounts. While the FDD states that the adoption of ASU 2016-13 did not have a material impact, it's still a good idea for a potential franchisee to inquire about the typical terms for franchisee accounts receivable, the historical rate of uncollectible accounts, and the specific criteria Coffee News uses to determine when an account is considered uncollectible and written off. This will help the franchisee understand the financial stability of Coffee News and its approach to managing financial risks associated with franchisee payments.