When preparing Ledgers' financial statements, what does management need to estimate and assume?

According to Ledgers' 2025 Franchise Disclosure Document, the company's management must make estimates and assumptions when preparing financial statements in accordance with accounting principles generally accepted in the United States of America. These estimates and assumptions impact the reported amounts of assets and liabilities as of the date of the financial statements. The FDD notes that the actual results could differ from these estimates.

Specifically, management must estimate the collectibility of royalty receivables. This involves considering factors such as the length of time accounts receivable are due, previous loss history, the customer's current ability to pay, and the condition of the general economy and the industry. Management also needs to estimate deferred tax assets, which depend on future pretax earnings, the reversal of temporary differences between book and tax income, and expected tax rates in future periods. As of December 31, 2024, net operating losses approximated $2,900,000.

Furthermore, the determination of current and deferred income taxes is a critical accounting estimate based on analyses of federal and state income tax laws, uncertain tax positions, temporary differences, and current financial accounting standards. These estimates and interpretations used in determining income tax liabilities may be challenged by federal and state taxing authorities, and actual results could significantly differ from the estimates used.