How does Crepe De Licious recognize an expected allowance for credit losses?
Crepe_De_Licious Franchise · 2025 FDDAnswer from 2025 FDD Document
financial statements on the accrual basis of accounting. An accrual basis financial statement gives effect to all revenue billed but not collected, expenses incurred but not yet paid, and expenses prepaid but not yet incurred.
Use of Estimates
The preparation of financial statements in conformity with U.S generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis, thus accounts receivable do no bear interest, although a finance charge may be applied to such receivables that are past due.
The Company recognizes an expected allowance for credit losses that is updated to reflect any changes in credit risk since the receivable was initially recorded. This estimate is calculated on a pooled basis by portfolio segment where similar risk characteristics exist. The Company's primary portfolio segments are franchisee receivables and corporate receivables. Accounts and rebates receivables are evaluated individually when they do not share similar risk characteristics, such as in circumstances where amounts are considered at risk or uncollectible.
The allowance estimate is derived from a review of the Company's historical losses based on the aging of its accounts and rebates receivables. This estimate is adjusted for management's assessment of current conditions, reasonable and supportable forecasts regarding future events, and any other factors deemed relevant by the Company. The Company believes historical loss information is a reasonable starting point in which to calculate the expected allowance for credit losses as the Company's portfolio segments have remained consistent. As discussed in Note 3, the Company believes that the 2023 credit loss is unique and does not anticipate it to be reflective of future expected credit losses. Therefore, management believes no allowance for credit losses is necessary as of December 31, 2024. During 2023, the Company had franchisees declare bankruptcy, the Company had anticipated higher than expected credit losses that were incurred in the past. As a result, management has individually assessed these balances for an allowance for credit losses as of December 31, 2023.
Source: Item 23 — RECEIPTS (FDD pages 57–233)
What This Means (2025 FDD)
According to Crepe De Licious's 2025 Franchise Disclosure Document, the company recognizes an expected allowance for credit losses that is updated to reflect any changes in credit risk since the receivable was initially recorded. This estimate is calculated on a pooled basis by portfolio segment where similar risk characteristics exist. The company's primary portfolio segments are franchisee receivables and corporate receivables. Accounts and rebates receivables are evaluated individually when they do not share similar risk characteristics, such as in circumstances where amounts are considered at risk or uncollectible.
The allowance estimate is derived from a review of the company's historical losses based on the aging of its accounts and rebates receivables. This estimate is adjusted for management's assessment of current conditions, reasonable and supportable forecasts regarding future events, and any other factors deemed relevant by the company. Crepe De Licious believes historical loss information is a reasonable starting point in which to calculate the expected allowance for credit losses as the company's portfolio segments have remained consistent.
The FDD states that Crepe De Licious will write off receivables when there is information that indicates the debtor is facing significant financial difficulty and there is no possibility of recovery. If any recoveries are made from any accounts previously written off, they will be recognized as an offset to credit loss expense in the year of recovery. In 2023, there was a significant change in the amount of the provision for credit losses due to two franchises declaring bankruptcy. However, the company believes this to be a one-time event and does not anticipate this situation to occur in future years. As of December 31, 2024, management believed no allowance for credit losses was necessary.