How does Exit account for receivables?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
Accounts receivable evolve in the normal course of business. It is the policy of management to review the outstanding accounts receivable at year end, as well as the credit losses experienced in the past, and establish an allowance for credit losses for amounts deemed uncollectible, if necessary. An allowance for credit losses was recorded in the amount of $22,500, $10,000, and $2,500 for the years ended December 31, 2024, 2023, and 2022, respectively. The Company's policy for charging interest on delinquent receivables varies by terms stated in individual contracts. Accounts receivable are considered past due on an individual client basis.
On January 1, 2023, the Company adopted FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and all related subsequent amendments thereto. This ASU replaced the incurred loss method of measuring financial assets with an expected loss method, which is referred to as the current expected credit loss (CECL) method. CECL requires an estimate of credit losses over the life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. For the Company, the ASU applies to the measurement of its accounts receivable. Accounts receivable are now presented by using an allowance for credit losses to reduce the receivables balances to the net amount expected to be collected over the lives of the receivables.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the company's accounting policy involves reviewing outstanding accounts receivable at year-end and assessing past credit losses. If deemed necessary, Exit establishes an allowance for credit losses for amounts considered uncollectible.
For the years ending December 31, 2024, 2023, and 2022, Exit recorded allowances for credit losses of $22,500, $10,000, and $2,500, respectively. The policy for charging interest on delinquent receivables varies based on the terms specified in individual contracts. Accounts receivable are considered past due on a client-by-client basis.
In 2023, Exit adopted FASB ASU 2016-13, which pertains to financial instruments and credit losses, replacing the incurred loss method with the current expected credit loss (CECL) method. This requires estimating credit losses over the life of financial assets, considering historical experience, current conditions, and forecasts. For Exit, this applies to accounts receivable, which are now presented with an allowance for credit losses to reflect the net amount expected to be collected.