What accounting standard does Crown Gold Exchange use for revenue recognition?
Crown_Gold_Exchange Franchise · 2024 FDDAnswer from 2024 FDD Document
E B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). As a result, the Company records revenue when earned and expenses when incurred. The Company has adopted the calendar year as its basis of reporting.
Use of Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities and other items, as well as the reported revenues and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and any cash equivalents include all cash balances, and highly liquid investments with maturities of three months or less when purchased.
Revenue Recognition
Revenues are primarily derived from franchise fees (one-time and recurring monthly fees). In accordance with Accounting Standards Codification (ASC) Topic 606, Revenue will be recognized when persuasive evidence of an arrangement exists, delivery has occurred, or services have been rendered, the seller's price to the buyer is fixed or determinable, and collectability is reasonable assured. The determination of whether fees and fixed or determinable and collection is reasonable assured involves the use of assumptions. Arrangement terms and customer information are evaluated to ensure that these criteria are met prior to recognition of revenue.
Specifically for franchisors, The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' in 2022 which provides a new practical expedient that permits private company franchisors to account for preopening services provided to a franchisee as distinct from the franchise license if the services are consistent with those included in a predefined list within the guidance. The Company has elected to adopt this new standard.
GOLDMEMBER, LLC NOTES TO FINANCIAL STATEMENTS MAY 15, 2024
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Unearned Revenue
The Company's primarily performance obligation under the franchise agreement mainly includes granting certain rights to access the Company's intellectual property and a variety of activities relating to opening a franchise unit, including initial training and other such activities commonly referred to collectively as "pre-opening activities", which are recognized as a single performance obligation. The Company expects that certain pre-opening activities provided to the franchisee will not be brand specific and will provide the franchisee with relevant general business information that is separate and distinct from the operation of a company-branded franchise unit.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 38)
What This Means (2024 FDD)
According to the 2024 Franchise Disclosure Document, Crown Gold Exchange prepares its financial statements in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). This means Crown Gold Exchange records revenue when earned and expenses when incurred.
Crown Gold Exchange derives revenues primarily from franchise fees, both one-time and recurring monthly fees. The FDD states that Crown Gold Exchange follows Accounting Standards Codification (ASC) Topic 606 for revenue recognition. Under these guidelines, revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. The determination of whether these criteria are met involves the use of assumptions, and arrangement terms and customer information are evaluated to ensure compliance before revenue is recognized.
The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' in 2022 which provides a new practical expedient that permits private company franchisors to account for preopening services provided to a franchisee as distinct from the franchise license if the services are consistent with those included in a predefined list within the guidance. The Company has elected to adopt this new standard.
For Crown Gold Exchange, the primary performance obligation under the franchise agreement includes granting rights to access the company's intellectual property and pre-opening activities such as initial training. Some pre-opening activities that are not brand specific and provide general business information are treated as separate performance obligations and are recognized as services are rendered. The remaining franchisee fee not allocated to pre-opening activities are recorded as Unearned Revenue and will be recognized over the term of the franchise agreement.