It is a means of

distributing goods or
services.
Franchising
2 parties involve in
franchising.

Franchisor
Franchisee
 2 types of
Franchise Fee
Initial Franchise Fee
Continuing Franchise Fee
 Initial Franchise Fee
It represents initial
payment for establishing
the franchise agreement,
and for providing certain
initial services
associated with the
agreement.
Continuing Franchise Fee
It represents continues
payment to the franchisor
for providing specific future
services, such as
advertising, and for the
continued use of intangible
rights by the franchisee.
 Revenue from the initial
franchise fee should be
RECOGNIZED on the
consummation of the
transaction, which occurs
when all material services or
conditions of the sale have
been __________________________.
substantially performed
Costs that should be
deferred until related
revenue is recognized.
Direct franchise
costs
 Costs that occur on a
regular basis and should
be expensed when
incurred.
Indirect costs
 2 methods used in
accounting revenue from
initial franchise fee.
Accrual basis
Installment Method
 This method is used when the
initial franchise fee is collectible
over an extended period of time
and the collectability of the
unpaid portion of the initial
portion of the franchise fee is
REASONABLY ASSURED.
Accrual basis
 This method is used when the
initial franchise fee is collectible
over an extended period of time
and the collectability of the
unpaid portion of the initial
portion of the franchise fee is
UNCERTAIN.
Installment Method
 TRUETrue
or FALSE

Continuing franchise fees:

Are RECOGNIZED as revenue

when actually earned and
receivable from the franchise.
 TRUEFalse
or FALSE

All direct and indirect costs

related too continuing franchise
fees:

Are NOT RECOGNIZED as

expense