How are accounts receivable presented by Exit after adopting FASB ASU 2016-13?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
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. The Company adopted the new standard using the modified retrospective approach. For the Company, there was no transition adjustment related to the adoption of CECL.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the company adopted FASB ASU 2016-13 on January 1, 2023, which pertains to financial instruments and credit losses. This update replaced the incurred loss method with the current expected credit loss (CECL) method for measuring financial assets. The CECL method requires estimating credit losses over the life of the financial asset, considering historical experience, current conditions, and reasonable forecasts.
For Exit, this accounting standards update specifically applies to the measurement of its accounts receivable. As a result, accounts receivable are now presented with an allowance for credit losses. This allowance reduces the receivable balances to the net amount that Exit expects to collect over the life of the receivables.
Exit adopted this new standard using a modified retrospective approach, and the FDD indicates that there was no transition adjustment related to the adoption of CECL. In simpler terms, Exit now uses an estimated allowance to account for potential credit losses on its accounts receivable, reflecting the amount it realistically expects to collect. This provides a more accurate view of the company's financial position by accounting for potential uncollectible amounts upfront.