When are accounts receivable recorded by Engineering For Kids?
Engineering_For_Kids Franchise · 2025 FDDAnswer from 2025 FDD Document
maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable and Credit Losses
The Company is exposed to credit losses primarily through sales of services. Accounts receivable represent the Company's unconditional right to consideration in exchange for services that the Company has provided to the customer based on contracted prices. Accounts receivable are recorded when invoices are issued and are presented on the balance sheet at the amount management expects to collect. Management provides for probable uncollectible amounts through credit losses expense and an adjustment to the allowance for credit losses. The Company's expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of customers' accounts receivable.
Source: Item 22 — CONTRACTS (FDD page 53)
What This Means (2025 FDD)
According to Engineering For Kids's 2025 Franchise Disclosure Document, accounts receivable are recorded when invoices are issued to customers in exchange for services that Engineering For Kids has provided based on contracted prices. These receivables represent the company's unconditional right to receive payment for those services. The accounts receivable are then presented on the balance sheet at the amount that management expects to collect from customers.
Engineering For Kids also accounts for potential credit losses by estimating probable uncollectible amounts. This is done through a credit losses expense and an adjustment to the allowance for credit losses. The company's methodology for estimating these losses involves considering historical collection experience, current and future economic and market conditions, and a review of the current status of customer accounts receivable. The company also evaluates contract terms, economic and industry risks, and customer creditworthiness, and may require prepayment to mitigate the risk of loss.
For a prospective Engineering For Kids franchisee, this accounting practice means that revenue is recognized as services are provided and invoices are issued, rather than when cash is received. Franchisees should be aware of the policies in place for managing and accounting for potential uncollectible accounts, as this can impact their financial reporting and profitability. Understanding how Engineering For Kids manages credit risk and allowances for credit losses is crucial for assessing the financial health and stability of the franchise system.