Under Legacy GAAP, when were Fitstop's franchise fees recognized as income?

According to Fitstop's 2024 Franchise Disclosure Document, under Legacy GAAP, Fitstop recognized franchise fees as income when substantially all services to be performed by the company and conditions relating to the sale of the franchise were performed or satisfied. This generally occurred when the franchisee commenced operations. This means that Fitstop did not recognize the entire franchise fee as income immediately upon receiving it.

For a prospective Fitstop franchisee, this accounting practice under Legacy GAAP meant that Fitstop's reported revenue would reflect the actual delivery of services and fulfillment of obligations related to the franchise sale. This approach aligns revenue recognition with the performance of services, providing a more accurate picture of the company's financial performance during the initial phase of a franchise agreement.

It's important to note that the document also mentions the adoption of a new accounting standard, ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", which changed how Fitstop records initial franchise fees, area developer fees, and brand development fees. This indicates a shift from the Legacy GAAP method to a more uniform basis for recording revenue, potentially affecting how future franchise fees are recognized and reported.