What five-step approach does Crepe De Licious apply to recognize revenue?

According to Crepe De Licious's 2025 Franchise Disclosure Document, the company uses a five-step approach to recognize revenue. This approach is based on the principle of depicting the transfer of promised services to customers in an amount that reflects the consideration the company expects to receive in exchange for those services.

The five steps are: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when, or as, a performance obligation is satisfied. This standardized approach ensures that revenue is recognized in a consistent and transparent manner, aligning with accounting standards.

For a prospective Crepe De Licious franchisee, understanding this revenue recognition policy is crucial. It clarifies when and how the franchisor recognizes revenue from various sources, such as franchise fees and royalties. This understanding can help franchisees better interpret the financial statements of the company and assess its financial health. Moreover, it provides insight into how the franchisor accounts for its obligations and earnings, which can be useful in evaluating the overall business relationship.