Under what condition are Coffee News receivables 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 pertains to the measurement of credit losses on financial instruments. This standard necessitates the measurement and recognition of expected versus incurred losses for financial assets held by the company, including franchisee accounts receivable. The adoption of ASU 2016-13 did not have a material impact on the company's financial statements.
In simpler terms, Coffee News uses a specific accounting method to estimate potential losses from franchisees not paying their dues. This involves assessing the expected credit losses on franchisee accounts receivable. Instead of waiting for actual losses to occur, Coffee News proactively estimates and accounts for potential losses.
For a prospective Coffee News franchisee, this accounting practice indicates that Coffee News is diligent in managing its financial risks related to franchisee payments. While the FDD mentions the adoption of ASU 2016-13, it does not specify the exact conditions under which Coffee News receivables are written off. Franchisees should inquire about the specific criteria and procedures Coffee News uses to determine when an account is deemed uncollectible and written off. Understanding these conditions can provide insight into the financial stability and risk management practices of the franchisor.