How did Craters & Freighters determine the allowance for doubtful accounts prior to 2023?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
Accounts Receivable - Beginning January 1, 2023, the carrying amount of accounts receivable is reduced by an allowance that reflects management's best estimate of the current expected credit losses. The estimate of the allowance for credit losses is based on an analysis of historical loss experience, current receivables aging, and management's assessment of current conditions and expected changes during a reasonable and supportable forecast period. The Company uses an aging method to estimate allowances for credit losses. Management assesses collectability by pooling receivables with similar risk characteristics and evaluates receivables individually when specific customer balances no longer share those risk characteristics. Prior to 2023, the allowance for doubtful accounts reflected losses that the Company estimated had been incurred as of the reporting date and was based on historical loss experience, current receivables aging, and management's assessment of current conditions.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 49)
What This Means (2025 FDD)
According to Craters & Freighters' 2025 Franchise Disclosure Document, prior to January 1, 2023, Craters & Freighters determined its allowance for doubtful accounts based on incurred losses estimated as of the reporting date. This determination was based on three key factors: historical loss experience, current receivables aging, and management's assessment of current conditions.
In simpler terms, Craters & Freighters looked back at past instances where they weren't able to collect accounts receivable, analyzed how old their current outstanding invoices were, and considered the overall economic climate and any specific issues with their customers. Based on this comprehensive review, they set aside an allowance to cover potential future credit losses.
It's worth noting that Craters & Freighters changed its accounting method for allowance for credit losses beginning January 1, 2023. While the factors considered remain similar (historical loss experience, receivables aging, and management's assessment), the new method focuses on expected credit losses over a forecast period rather than just incurred losses. This change reflects a move towards a more forward-looking approach in estimating potential losses from uncollectible accounts receivable.