On what basis of accounting are Mr. Sandless' financial statements prepared?
Mr_Sandless Franchise · 2025 FDDAnswer from 2025 FDD Document
Basis of Accounting-The accompanying financial statements have been prepared on an accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to disbursement of cash.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 41–42)
What This Means (2025 FDD)
According to Mr. Sandless' 2025 Franchise Disclosure Document, the company's financial statements are prepared using the accrual basis of accounting. This method conforms with accounting principles generally accepted in the United States of America.
Under the accrual method, Mr. Sandless recognizes revenues when they are earned, regardless of when cash is received. Expenses are recognized when a liability is incurred, irrespective of when the cash disbursement occurs. This approach provides a more accurate picture of the company's financial performance over a period of time, as it matches revenues with the expenses incurred to generate those revenues.
For a prospective franchisee, understanding the accrual basis of accounting is crucial. It means that the financial statements reflect the economic reality of transactions, rather than just cash flows. This can impact how a franchisee interprets their own financial performance and make informed business decisions. Franchisees should ensure they understand how revenues and expenses are recognized under this method to accurately assess their profitability and financial position.