What accounting standard update (ASU) addresses financial instruments and credit losses, impacting Hydrodog's trade receivables?
Hydrodog Franchise · 2025 FDDAnswer from 2025 FDD Document
ses in this account through the date when the financial statements were available to be issued.
Accounts Receivable - Trade:
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), or CECL, which prescribes an impairment model for most financial instruments based on expected losses rather than incurred losses. Under this model, an estimate of expected credit losses over the contractual life of the instrument is to be recorded as of the end of a reporting period as an allowance to offset the amortized cost basis, resulting in a net presentation of the amount expected to be collected on the financial instrument. For most instruments, entities must apply the standard using a cumulative-effect adjustment to beginning member's equity as of the beginning of the fiscal year of adoption.
The Company recorded an allowance for credit losses as of December 31, 2024 and 2023, in the amount of $23,287 and $33,893, respectively. Financial assets and liabilities held by the Company that are subject to the "expected credit loss" model prescribed by CECL include trade receivables. Trad
Source: Item 23 — RECEIPTS (FDD pages 43–166)
What This Means (2025 FDD)
According to Hydrodog's 2025 Franchise Disclosure Document, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, also known as CECL (Financial Instruments - Credit Losses (Topic 326)), in June 2016. This update changes how Hydrodog accounts for potential credit losses on financial instruments, including trade receivables. Instead of only accounting for losses that have already occurred, Hydrodog must now estimate expected credit losses over the life of the financial instrument and record an allowance to offset the cost. This allowance results in a net presentation of the amount expected to be collected. Hydrodog recorded an allowance for credit losses of $23,287 as of December 31, 2024, and $33,893 as of December 31, 2023.
For a potential Hydrodog franchisee, this accounting standard primarily affects how Hydrodog manages and reports its financial assets, specifically trade receivables. Trade receivables are amounts owed to Hydrodog by its customers. The CECL standard requires Hydrodog to estimate potential credit losses on these receivables and set aside an allowance. This means Hydrodog is proactively accounting for the risk that some customers may not pay their full balance.
The adoption of ASU No. 2016-13 requires Hydrodog to make a cumulative-effect adjustment to the beginning member's equity as of the beginning of the fiscal year of adoption for most instruments. This adjustment reflects the impact of the new credit loss model on the company's financial statements. The standard impacts financial assets and liabilities held by Hydrodog that are subject to the "expected credit loss" model prescribed by CECL, including trade receivables, which are stated at the amount of consideration from customers of which the Company has an unconditional right to receive.