How does Deka Lash record royalty fees paid by franchisees?
Deka_Lash Franchise · 2024 FDDAnswer from 2024 FDD Document
Franchisees also pay a monthly royalty fee, based on cash receipts, and for advertising fees, technology fees, and customer service fees. Royalty fees are recorded in the month earned if collectability is reasonably assured. Estimates of royalties earned, but unreported by the franchisees at the balance sheet date are recorded as revenue and accounts receivable, and are adjusted to actual amounts when reported and paid by the franchisee. Advertising, technology, and customer service fees are recognized when earned.
Source: Item 23 — RECEIPT (FDD pages 63–234)
What This Means (2024 FDD)
According to the 2024 Deka Lash Franchise Disclosure Document, Deka Lash records royalty fees in the month they are earned, assuming collectability is reasonably assured. If franchisees have earned royalties that have not yet been reported at the balance sheet date, Deka Lash estimates these royalties and records them as revenue and accounts receivable. These estimates are then adjusted to reflect the actual amounts once the franchisee reports and pays them.
In addition to royalty fees, Deka Lash franchisees also pay monthly advertising fees, technology fees, and customer service fees. Deka Lash recognizes these fees when they are earned. This means that Deka Lash accounts for these revenues as they provide the associated services or support to the franchisees.
This accounting practice ensures that Deka Lash's financial statements accurately reflect the revenue earned from franchise operations. By estimating and adjusting royalty fees, Deka Lash aims to provide a transparent view of its financial performance, which is standard accounting practice.