Under what conditions does the Crepe De Licious Restaurant account for its contracts with customers?
Crepe_De_Licious Franchise · 2025 FDDAnswer from 2025 FDD Document
The Restaurant primarily earns its revenue through sales of crepes and beverages to consumers. The Restaurant accounts for its contracts when it has obtained the approval and commitment from both parties, the rights of the parties are identified, the payment terms are identified, the contract has commercial substance and the collectability of consideration is probable. The Restaurant's customer base is typically residents of the Miami, Florida area where the restaurant is located. The Restaurant's major product lines are crepes and beverages. The Company's contracts with its customers are short-term in nature and end upon the delivery of the ordered food.
Source: Item 23 — RECEIPTS (FDD pages 57–233)
What This Means (2025 FDD)
According to the 2025 Crepe De Licious FDD, the Restaurant, which is a directly-operated location by Crepe De Licious, primarily generates revenue through the sale of crepes and beverages to consumers. The Restaurant recognizes revenue from its contracts when several conditions are met. These conditions include obtaining approval and commitment from both parties involved in the contract, identifying the rights of each party, clearly defining the payment terms, ensuring the contract has commercial substance, and confirming the collectability of consideration is probable.
For Crepe De Licious, the customer base for the Restaurant is typically residents of the Miami, Florida area, where the restaurant is located. The Restaurant's main product lines are crepes and beverages. The contracts with customers are short-term, concluding once the ordered food is delivered. This means that revenue recognition is tied directly to the point of sale and immediate delivery of the product.
This approach to revenue recognition is standard for quick-service restaurants like Crepe De Licious, where transactions are typically immediate and short-term. Franchisees should understand that the revenue recognition policy for the corporate-owned restaurant reflects the immediate nature of sales, which may differ from how franchise fees or royalties are accounted for, as those involve longer-term contractual obligations.