Where are expenses incurred to provide advertising services included within Craters & Freighters' financial statements?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalties, including franchisee contributions to advertising funds, represent sales-based royalties and are calculated as a percentage of net sales reported by franchisees and recognized over time as franchisee sales occur. These revenues are presented within "royalties" and expenses incurred to provide these services are included within "franchisee support." Regarding advertising funds, under the new revenue standard, the Company has determined it acts as a principal of the franchisee advertising transactions, thus, revenue and expense are presented gross. These revenues are presented within "franchise revenues" and expenses incurred to provide these services are included within "advertising." When revenues of an advertising program exceed the related advertising expenses, advertising costs are accrued up to the amount of revenues on an annual basis.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 49)
What This Means (2025 FDD)
According to the 2025 FDD, Craters & Freighters includes expenses incurred to provide advertising services within the "advertising" section of their financial statements. This is because Craters & Freighters has determined that it acts as the principal in franchisee advertising transactions. As such, both the revenue and expenses are presented gross.
Franchise revenues for Craters & Freighters consist of royalties, advertising, technology, insurance fund contributions, and initial franchise fees. Franchisees contribute to the advertising funds, which are calculated as a percentage of net sales reported by the franchisees. These revenues are categorized as "royalties."
It's important to note that if the revenues from an advertising program exceed the related advertising expenses, Craters & Freighters accrues advertising costs up to the amount of the revenues on an annual basis. This accounting practice ensures that advertising expenses are appropriately matched with advertising revenues in the company's financial reporting.