When are franchise deposits collected from a hotel owner applying for an Embassy Suites franchise license?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchise deposits represent application, initiation and other fees that are collected at the time a hotel owner applies for a franchise license. These amounts are recorded as a current liability until the fees become non-refundable, at which time they are reclassified to deferred revenues. In certain cases, if the franchise application is not approved, the fee is recorded as an other current liability in our balance sheet until it is refunded to the applicant, less processing fees, if applicable.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, franchise deposits, which include application, initiation, and other fees, are collected at the time a hotel owner applies for a franchise license. These deposits are initially recorded as a current liability on Embassy Suites's balance sheet. They remain as such until the fees become non-refundable. Once the fees are deemed non-refundable, they are then reclassified as deferred revenues.
However, there's a contingency: if the franchise application is not approved, the fee is recorded as an 'other current liability' on the balance sheet. This ensures that the funds are accounted for as a liability until they are either refunded to the applicant or the application is approved. If a refund is issued, it may be less any applicable processing fees.
This accounting treatment provides transparency regarding Embassy Suites's handling of franchise deposits. It also ensures that these deposits are appropriately classified and recognized as revenue only when the associated services are provided or the fees become non-refundable, which aligns with standard accounting practices for franchise operations.