What accounting standard does Face Foundrie use for revenue recognition, and when did Face Foundrie adopt it?
Face_Foundrie Franchise · 2025 FDDAnswer from 2025 FDD Document
As of January 1, 2023, the Company adopted ASC 606, Revenue from Contracts with Customers. ASC 606 provides that revenues are to be recognized when control of promised goods or services is transferred to a customer in an amount that reflects the considerations expected to be received for those goods or services. In implementing ASC 606, the Company evaluated all revenue sources using the five-step approach: identify the contract, identify the performance obligations, determine the transaction price, allocate the transaction price, and recognize revenue. For each franchised location, the Company enters into a formal franchise agreement that clearly outlines the various components of the transaction price and the Company's performance obligations.
The Company's revenues consist primarily of initial franchise fees, royalties and advertising fees based on a percentage of net revenues and monthly flat fees for technology fees.
Royalties, advertising fees and technology fees
Upon evaluation of the five-step process, the Company has determined that royalties, advertising fees, and technology fees are to be recognized in the same period as the underlying sales.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 73)
What This Means (2025 FDD)
According to Face Foundrie's 2025 Franchise Disclosure Document, the company adopted ASC 606, Revenue from Contracts with Customers, as of January 1, 2023. This accounting standard dictates that revenues are recognized when control of promised goods or services is transferred to a customer, reflecting the consideration expected to be received for those goods or services.
For Face Foundrie, the implementation of ASC 606 involved evaluating all revenue sources using a five-step approach: identifying the contract, identifying performance obligations, determining the transaction price, allocating the transaction price, and recognizing revenue. The company enters into a formal franchise agreement with each franchised location, which outlines the components of the transaction price and Face Foundrie's performance obligations.
Face Foundrie's revenues primarily consist of initial franchise fees, royalties, advertising fees based on a percentage of net revenues, and monthly flat technology fees. Royalties, advertising fees, and technology fees are recognized in the same period as the underlying sales. This means that as a franchisee generates sales and incurs these fees, Face Foundrie recognizes the corresponding revenue.
The adoption of ASC 606 impacts how Face Foundrie accounts for and reports its revenue, providing a standardized framework for revenue recognition. For a prospective franchisee, understanding these accounting practices can offer insight into how Face Foundrie manages its finances and recognizes revenue from its franchise operations.