What is the significance of the phrase 'accounting principles generally accepted in the United States of America' (GAAP) in the context of the Crave Franchising, LLC financial statements?
Crave Franchise · 2025 FDDAnswer from 2025 FDD Document
4, 2023, and 2022, total capital distributions were $169,340, $483,344 and $446,770, respectively.
2. Summary of significant accounting policies and nature of operations
Basis of presentation
The Company prepares its financial statements on the accrual basis of accounting consistent with accounting principles generally accepted in the United States of America.
Use of estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents include all cash balances on deposit with financial institutions and highly liquid investments with a maturity of three months or less at the date of acquisition.
The Company maintains its cash in bank deposit accounts which could exceed federally insured limits. The Company has not experienced an instance where cash held in the account exceeded insured limits since their inception and have not had losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Accounts receivable
Management considers receivables to be fully collectible. If amounts become uncollectible, they are charged to operations in the period in which that determination is made. Accounting principles generally accepted in the United States of America require that the allowance method be used to recognize bad debts; however, the effect of using the direct write-off method is not materially different from the results that would have been obtained under the allowance method. For the period ended December 31, 2024, there were no write-offs and no allowance deemed necessary.
Property and equipment
Property and equipment will be stated at cost.
Source: Item 23 — RECEIPTS (FDD pages 63–253)
What This Means (2025 FDD)
According to Crave's 2025 Franchise Disclosure Document, the phrase 'accounting principles generally accepted in the United States of America' (GAAP) is significant because it indicates the standard set of guidelines and practices Crave uses to prepare its financial statements. Specifically, Crave prepares its financial statements on the accrual basis of accounting, consistent with GAAP. This ensures uniformity and comparability in financial reporting, allowing potential franchisees to better understand Crave's financial position and performance.
GAAP requires Crave's management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. These estimates could include items such as the collectibility of receivables or the useful lives of assets. Actual results may differ from these estimates, introducing a degree of uncertainty. However, adherence to GAAP provides a structured framework for making these estimates and disclosing them to users of the financial statements.
Furthermore, the independent auditor's report explicitly states that their opinion is based on an audit conducted in accordance with auditing standards generally accepted in the United States of America (GAAS). The auditor expresses an opinion on whether Crave's financial statements present fairly its financial position, results of operations, and cash flows in accordance with GAAP. This independent audit provides additional assurance to prospective franchisees that the financial statements are reliable and fairly presented. Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.