When does Crepe De Licious recognize revenue from franchise fees?

According to Crepe De Licious's 2025 Franchise Disclosure Document, the company recognizes revenue from franchise fees in the year the store opens. This is based on the Financial Accounting Standards Board Accounting Standards Update 2021-02, which Crepe De Licious has elected to adopt. The sales are made to franchisees, and Crepe De Licious receives a contractually obligated fee from the franchisee based on the restaurant. Payment for the initial franchise fees are due at the time the agreement is signed. Revenue from franchise fees are recognized at a point in time.

For a prospective franchisee, this means that Crepe De Licious recognizes the initial franchise fee as revenue when the franchisee's store opens. The franchisee is obligated to pay the initial franchise fee when the franchise agreement is signed. This accounting method provides clarity on when the franchisor recognizes the revenue, aligning it with the commencement of the franchise operation.

This approach to revenue recognition is specific to initial franchise fees. Other revenue streams, such as royalties and advertising fees, are recognized differently based on their respective performance obligations. Understanding these distinctions is crucial for franchisees to comprehend the financial relationship with Crepe De Licious.

It's important to note that the timing of revenue recognition does not necessarily align with the franchisee's payment schedule. While the franchisee pays the initial fee upon signing the agreement, Crepe De Licious recognizes the revenue when the store opens. This difference in timing can impact the financial reporting and analysis for both the franchisor and the franchisee.