How does Crave Cookies treat deferred revenue?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
d from the accounts and gain or loss on disposition is reflected in the net income in the period of disposition.
Contract liabilities - contract liabilities represent the Company's obligation to transfer goods or services to a customer when consideration has been received from the customer. These consist of deferred franchise fee revenues on the balance sheet.
Related party note payable - related party note payable represents amounts due to a related party for operating expenses and other fees that were paid on behalf of the Company. The terms of the note are non-interest bearing and due on demand. The related party is owned 100% by the owners of the Company.
Revenue recognition - revenue is recognized when control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services. The amount and timing of revenue recognition varies based on the nature of the goods or services provided and the terms and conditions of the customer contract.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies' 2025 Franchise Disclosure Document, contract liabilities, which include deferred franchise fee revenues, represent the company's obligation to provide goods or services to a customer when payment has already been received. This means that when Crave Cookies receives franchise fees before fulfilling all of its obligations to the franchisee, it recognizes this revenue over time as it provides the services.
The FDD states that a portion of the proceeds from the sale of franchises is recognized as revenue when Crave Cookies has performed substantially all services for the franchise, typically upon completion of new franchise training and the start of the franchisee's business. The remaining portion of the franchise fee is recognized as revenue over the expected life of the franchise agreement. This approach aligns with standard accounting practices, where revenue recognition is tied to the delivery of goods or services rather than simply the receipt of payment.
For a prospective Crave Cookies franchisee, this means that the initial franchise fee paid is not immediately recognized as revenue by Crave Cookies. Instead, it is initially recorded as a liability and then recognized as revenue over time as Crave Cookies fulfills its obligations under the franchise agreement. This accounting treatment provides a more accurate picture of Crave Cookies' financial performance by matching revenue with the services provided to franchisees over the long term. The FDD also mentions that the company generally requires that the entire franchise fee be paid upon execution of the franchise agreement.