What is the subject of Note B in Fly To Fit's financial statements?
Fly_To_Fit Franchise · 2024 FDDAnswer from 2024 FDD Document
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). As a result, the Company records revenue when earned and expenses when incurred. The Company has adopted the calendar year as its basis of reporting.
Use of Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities and other items, as well as the reported revenues and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and any cash equivalents include all cash balances, and highly liquid investments with maturities of three months or less when purchased.
Revenue Recognition
Revenues are primarily derived from franchise fees (one-time and recurring monthly fees). In accordance with Accounting Standards Codification (ASC) Topic 606, Revenue will be recognized when persuasive evidence of an arrangement exists, delivery has occurred, or services have been rendered, the seller's price to the buyer is fixed or determinable, and collectability is reasonable assured. The determination of whether fees and fixed or determinable and collection is reasonable assured involves the use of assumptions. Arrangement terms and customer information are evaluated to ensure that these criteria are met prior to recognition of revenue.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 44)
What This Means (2024 FDD)
According to Fly To Fit's 2024 Franchise Disclosure Document, Note B in the financial statements pertains to the summary of significant accounting policies. This note outlines the fundamental principles and practices Fly To Fit uses to prepare its financial statements. These policies are crucial for understanding how Fly To Fit recognizes revenue, handles estimates, and treats cash and cash equivalents.
The note begins by stating that the financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). It clarifies that Fly To Fit records revenue when earned and expenses when incurred, following a calendar year for reporting. The note also addresses the use of estimates in preparing financial statements, acknowledging that management makes assumptions that can affect reported amounts. This is a standard practice, but it highlights that actual results could differ from these estimates.
Furthermore, Note B details Fly To Fit's policies on revenue recognition, particularly concerning franchise fees. It explains how the company determines the stand-alone selling price of pre-opening activities and how revenue is recognized over the term of the franchise agreement. The note also covers income taxes, explaining how deferred income taxes are recognized and how net operating losses are handled. Understanding these accounting policies is essential for a prospective franchisee to accurately interpret Fly To Fit's financial performance and stability.