How does Kidokinetics recognize service revenue?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
mance obligations. For service revenues, the Company enters into contracts with individual customers and franchisees.
Upon evaluation of the five-step process, the Company has determined that royalties from locations operated by a franchisee, which are based on a percentage of gross revenue, are to be recognized at the time the underlying sales occur. Service revenue is to be recognized in the period the services are performed. In allocating the transaction price and recognizing the revenue associated with initial franchise fees, the Company has elected to adopt the practical expedient for private company franchisors outlined in ASC 952-606, Franchisors—Revenue from Contracts with Customers. The practical expedient allows franchisors to account for pre-opening services as a single distinct performance obligation.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, service revenue is recognized in the period when the services are performed. Kidokinetics enters into contracts with individual customers and franchisees for these service revenues. This means that Kidokinetics accounts for the revenue as it delivers its services, aligning revenue recognition with the actual performance of those services.
Kidokinetics also outlines a five-step process for revenue recognition, in accordance with ASC 606, Revenue from Contracts with Customers. This process includes identifying the contract, identifying performance obligations, determining the transaction price, allocating the transaction price, and recognizing revenue when control of the promised services is transferred to the customer. This standardized approach ensures that Kidokinetics's revenue recognition is consistent and compliant with accounting standards.
In 2023, Kidokinetics reported service revenue of $467,961, compared to $87,473 in 2022 and no service revenue in 2021. This indicates a significant increase in service revenue over the past few years. For a prospective franchisee, this means understanding the types of services that generate this revenue and how those services are delivered and accounted for is important. Understanding the terms and conditions of the service contracts with customers will also be important for franchisees to accurately forecast their revenue.